Manufacturing Boost For Sterling

The week has started on a positive note for Sterling, led by improvements in the U.K. housing market and business confidence. Aiding sentiment, manufacturing activity has also revealed an expansion for March. This coupled with Eurozone finance ministers’ approval to boost the rescue fund earlier on Friday and strong official Chinese manufacturing PMI this morning has buoyed traders and kept risk sentiment alive in today’s trading session. Across the Atlantic, the ISM manufacturing index for March will be keenly tracked today followed by the all important non-farm payrolls later this week. Markets also brace themselves for key central bank meetings in the UK and the Eurozone in the week ahead.

Pound Sterling – UK Markets

On Friday, the Pound breached the 1.60 mark against the US Dollar as traders shunned safe haven currencies after Eurozone finance ministers agreed to boost the region’s rescue fund to counter the debt crisis. The Pound has cemented gains against the US Dollar and is trading steady against the Euro this morning. Data just out has revealed that U.K. manufacturing activity expanded at a faster than expected pace for March. Sterling strengthened immediately on this release and market expectation is for the Pound to see continued support throughout today’s session. Fears surrounding the health of the British housing market eased considerably after Hometrack revealed that monthly house prices rose for the first time since June 2010. Additionally, the Lloyds Bank business barometer in the UK registered a sharp increase for March. Against this backdrop, all eyes are now focused on the BoE’s monetary policy meeting due later this week wherein the central bank is expected to maintain its interest rate and asset purchase target unchanged at current levels.

US Dollar – US Markets

On Friday, the greenback weakened against the Euro amid improved risk appetite after Eurozone finance ministers decided to raise the combined size of the region's bailout fund. Risk sentiment received a boost after Reuters/Michigan reported a sharp improvement in the consumer confidence for March, while personal spending rose to a seven month high level for February. The US Dollar has weakened against the majors this morning as upbeat Chinese official manufacturing PMI for March prompted investors to shun safe haven currencies. In today’s trading session, market participants await the release of the ISM data which is likely to reveal that the manufacturing activity remained robust for March. Additionally, construction spending data scheduled for release today is expected to indicate an uptick.

Euro – European Markets

On Friday, the Euro registered gains against the US Dollar after EU finance ministers agreed to combine the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). The Euro has continued its uptrend against the US Dollar this morning. Data just released indicates that German and Italian manufacturing activity improved for March, while French manufacturing activity deteriorated. Elsewhere in the region, deficit reduction measures gained momentum as the Spanish government approved its 2012 budget with draconian cuts of about €27.3 billion to achieve its GDP-to-debt ratio target. Markets are set to closely track Eurozone’s unemployment data and German bills auction scheduled later today. Traders are also keeping an eye on the important ECB interest rate decision due later this week.

Other Currencies – Highlights

An unexpected rise in the Chinese official PMI data for March eased fears of a slowdown in the world’s second largest economy and led the Aussie Dollar to climb against the US Dollar. Additionally, a strong start to the European equities market has further bolstered confidence among market participants. However, a decline in Australian manufacturing activity for March, coupled with an unexpected monthly fall in building approvals, pointed to subdued economic growth. This has kept investors focused on the Reserve Bank of Australia’s rate setting meeting due tomorrow. Additionally, markets are expected to closely monitor retail sales and services PMI data scheduled for release tomorrow.