QE3 Fails to Launch

Yesterday, minutes of the Federal Reserve’s latest policy meeting poured cold water on market hopes of further quantitative easing in the US which has aided sentiment towards safe haven currencies. The next trigger for the markets is likely to be the ECB policy meeting due later today. The monetary policy stance is unlikely to undergo any major surprises but the ensuing press conference by the ECB President would be of key interest to market participants. At home, data just out reveals an unexpected improvement in services sector for March. This comes on the back of robust manufacturing and construction activity data released earlier this week.

Pound Sterling – UK Markets

Sterling has declined sharply against the US Dollar yesterday after the Fed’s minutes for the latest rate setting meeting indicated that another round of monetary stimulus would not be required unless the US economic recovery falters. However, the Pound has registered gains against the Euro. Today, Sterling has continued its upward trend against the Euro, while it is trading on a weaker footing against the US Dollar. Data just released indicates that the service sector expanded for March at a pace much higher than market expectations. Fears over Britain’s retail sector eased after the British Retail Consortium revealed earlier today that shop price inflation climbed at a faster pace for March. Calls for additional asset purchases has gradually petered out as the UK economy appears to have gained traction as evidenced by the recent strong manufacturing and construction activity data. In absence of major economic data today, traders are awaiting the BoE’s rate setting meeting due tomorrow which is expected to reveal the central bank has kept its monetary policy on hold.

US Dollar – US Markets

Yesterday, the US Dollar registered stellar gains against its major peers after minutes of the Federal Reserve’s latest meeting revealed that the possibility for further quantitative easing has waned significantly, owing to the recent improvement in the US economy. This sentiment has continued in the current trading session and aided the US Dollar to extend gains against the majors. However, San Francisco Fed President, John Williams, is amongst the policymakers urging for more central bank action, as he opined that the Fed must continue to act “vigorously” to boost the economy and aid in sustaining the recovery in the labour market. Yesterday, data indicated that US factory orders grew less-than-expected for February. In today’s session, markets are expected to closely track the ADP employment data which is considered as a precursor to the crucial non-farm payrolls due this Friday. Additionally, ISM’s non-manufacturing composite index and mortgage applications are also on the economic docket today.

Euro – European Markets

The Euro fell sharply against its major peers yesterday after the US Federal Reserve quashed hopes of an additional round of easing in the near future. In today’s trading session, the Euro has slipped back below the 1.32 mark against the US Dollar and is trading marginally lower against the Pound, ahead of the ECB’s monetary policy meeting due today the central bank is expected leave its benchmark interest rate unchanged at 1%. However, all eyes are expected to be focused on the post-meeting press conference by the ECB President, Mario Draghi, for further hints on the overall economic scenario. Additionally, traders remain skeptical ahead of Spanish and Portuguese bond auctions due later today amid mounting contagion fears. On the macro front, markets are keeping an eye on Eurozone retail sales and German factory orders data due today. Data released earlier in the day indicated that service sector activity across the Eurozone improved for March.

Other Currencies – Highlights

The Aussie Dollar has retreated against the US Dollar this morning after Australia surprisingly registered a trade deficit, with the recent weakness in China seemingly hurting the economy. Australia recorded a trade deficit of A$480 million for February against market expectations for a surplus of A$1.1 billion. Another set of data revealed that the Australian services sector remained in contraction for March. Additionally, market speculation that the Reserve Bank of Australia (RBA) may cut its benchmark interest rate in its monetary policy meeting next month also weighed on the Australian Dollar. Yesterday, RBA Governor, Glenn Stevens, indicated that economic growth was "somewhat lower" and it was prudent to wait for the March quarter inflation report, which is due this month, before considering further rate cuts.