UK Manufactures Something Positive!

In the UK, yesterday’s upbeat manufacturing data has revived hopes that the economy may avoid slipping into a recession and has kept calls for an imminent increase in asset purchases by the BoE at bay. Underpinning the positive sentiment, data just out indicates that construction sector activity expanded at a faster than expected pace for March. Across the Atlantic, robust ISM manufacturing data supported the risk sentiment yesterday. With little to offer in term of European data today, market participants await the minutes of the Federal Reserve’s last monetary policy meeting, which is expected to be a key determinant for risk sentiment in this trading session.

Pound Sterling – UK Markets

Sterling strengthened against the majors yesterday, after data showed that manufacturing sector activity in the UK grew at the fastest pace in 10 months for March and fuelled optimism that the British economy may avoid slipping into recession. Against this backdrop, market participants are expected to closely track the central bank’s monetary policy decision later in the week. In today’s trading session, the Pound has slid marginally against the Euro and holding firm versus the dollar. Data this morning showed that the UK construction sector expanded for March, higher than market expectation. Meanwhile, the British Chamber of Commerce struck a cautiously optimistic note, after it indicated that the UK economy may avoid recession amid visible signs of improvement. Sterling will likely track overall risk sentiment prevailing in the market today.

US Dollar – US Markets

The US Dollar is trading steady against the majors this morning. Highlighting an improving economic landscape the Cleveland Fed President, Sandra Pianalto, opined that the US economy may probably grow at 2.5% in 2012 and around 3% next year. This comes on the back of robust ISM manufacturing data released yesterday, which showed that manufacturing picked up steam amid rising production and strong orders for the coming months. This, coupled with the previous week’s upbeat personal spending and consumer confidence data, has raised hopes of traction in the first quarter. Investors keenly await factory orders data later today. The minutes of the latest FOMC meeting will also be in focus, as earlier subdued comments from the Fed Chairman, Ben Bernanke, had stoked speculation of an additional round of QE for the economy.

Euro – European Markets

Renewed fears over a potential recession in the Eurozone dragged the Euro lower against its major counterparts yesterday. Contraction in Eurozone manufacturing activity for the eighth straight month, coupled with a 14-year high unemployment rate, points towards the inherent weakness in the region’s economy. Moreover, contraction in manufacturing activity in Germany and France has fuelled speculation that the ECB may keep its monetary policy accommodative in tomorrow’s meeting. However, the Euro remains well supported against the US Dollar this morning, after data indicating a rebound in Chinese non-manufacturing sector for March prompted investors to reduce bets in safe haven currencies. On the macro front, producer price inflation data is scheduled to be released later today. Market participants are also keeping an eye on the EFSF and Belgian bills auction due later today.

Other Currencies – Highlights

The Yen has gained against its major counterparts this morning, after data released earlier today indicated that labour cash earnings posted its first rise in nine months for March. However, another report revealed that Japanese monetary base contracted for the first time in more than three years for March, bolstering market speculation for further action from the central bank to end deflation. This comes on the back of yesterday’s lacklustre Bank of Japan's Tankan survey, which revealed weaker-than-expected business confidence among the nation's major manufacturers. Meanwhile Yasuhiro Sato, the Chairman of the Japanese Bankers Association, warned that the nation’s credibility as a future investment location could be hit, unless the government resorts to aggressive fiscal reforms decisively and swiftly.