EUR Cracks Reopen

The poor demand at Spain's debt auction yesterday sparked fears of an escalation of the European debt crisis and weighed on the Euro. The focus has now shifted to French bond auctions and German industrial production data due later today. With an extended weekend ahead and crucial US non-farm payrolls due tomorrow, traders are likely to remain cautious in today’s trading session. At home, monthly industrial production has revealed a rebound for February, following a series of strong PMI figures released earlier this week. Meanwhile, the BoE’s monetary policy meeting due later today is not expected to garner much market interest.

Pound Sterling – UK Markets

The Pound had gained against the Euro yesterday, as Eurozone sovereign debt concerns resurfaced after Spanish borrowing costs rose in a bond auction. In today’s trading session, Sterling has recovered from yesterday’s lows against the US Dollar and is trading steady against the Euro. Data just released reveals that industrial production improved for March. On the domestic front, encouraging PMI scores covering manufacturing, services and construction sectors, coupled with a rebound in the housing market, suggests that the British economy is firmly on track. This has tempered calls for further easing by the BoE, which is scheduled to meet for its monetary policy meeting later today. It is widely expected that the central bank will leave its benchmark interest rate and asset purchase target unchanged at current levels. Markets also await the NIESR Gross Domestic Product estimate for March due later today, to gauge the strength of the economy.

US Dollar – US Markets

Yesterday, the US Dollar witnessed an upward momentum against the majors on resurgent concerns over Spanish economic woes and was well supported by the waning possibility of QE3, as revealed in the FOMC minutes. The greenback is holding its gains this morning amid improved risk appetite, after data released earlier today revealed that the Chinese services PMI for March climbed to the highest reading in 11 months. Market speculation of additional quantitative easing has dampened, with the US job market showing signs of improvement. Yesterday, the keenly awaited ADP Employer Services data posted a better-than-expected addition to private sector jobs for March, setting the stage for strong non-farm payrolls due tomorrow. Markets expect US employers to add more than 200,000 workers for a fourth consecutive month for March. Against this backdrop, market participants are set to closely track initial jobless claims and Challenger job cuts data in today’s trading session, for further hints on the labour market.

Euro – European Markets

Flaring concerns over the region’s debt crisis led the Euro to register declines against its major counterparts yesterday. Spain dominated market worries once again, as lack of investor confidence over the nation’s ability to meet its deficit reduction target became evident after borrowing costs rose at a Spanish bond auction. Adding to the woes Prime Minister, Mariano Rajoy, confirmed that Spain is facing an economic situation of “extreme difficulty”. The ECB, in its policy setting meeting yesterday, retained its interest rate at a record low of 1%. The ECB President, Mario Draghi, warned that the region’s economic outlook remains subject to downside risks. In today’s trading session, the movement in the Euro is likely to remain subdued ahead of the release of German industrial production data for February. Additionally, the dismal show by Spain in the auction yesterday has brought French bond action due later today into the spotlight.

Other Currencies – Highlights

Data released earlier today indicated that the Swiss economy slipped deeper into deflation after the nation’s annual consumer prices fell 1% for March, compared to a 0.9% decline recorded for the previous month. Commenting on the currency’s cap against the Euro, Swiss National Bank board member, Jean-Pierre Danthine, indicated that the central bank still regards the Franc as “overvalued”. Meanwhile, data released earlier this week provided a mixed picture regarding the state of the Swiss economy. The nation’s manufacturing PMI unexpectedly expanded for March, while retail sales growth slowed for February. Tomorrow’s business climate data, along with next week’s unemployment data, are likely to provide a wider perspective on the nation’s economic scenario.