China's Engine Decelerates

The disappointing Chinese first quarter GDP data released earlier today has provided some support to safe haven currencies in this trading session. With US policymakers signaling that interest rates are likely to remain low through 2014, markets will eye US consumer price inflation data due later today. Coupled with Reuters/Michigan consumer sentiment data later this afternoon, these releases should provide food for thought for those Federal Reserve’s officials who are currently considering further quantitative easing. At home, both input and output producer price inflation have eased for March, highlighting that price pressures in the economy are decelerating somewhat.

Pound Sterling – UK Markets

Yesterday, the Pound climbed against the US Dollar on higher risk appetite, as receding Italian and Spanish 10 year bond yields overshadowed weak trade balance data from the UK. However, the improving scenario in bond markets of peripheral Eurozone economies supported gains in the Euro against the Pound. Meanwhile, the BoE policymaker, Adam Posen, rejected concerns of a Eurozone break up stating that the region’s nations would "do what it takes to maintain the Euro”. The Pound has reversed from yesterday’s gains against the US Dollar this morning, as weaker than expected GDP growth in China spurred demand for safe haven currencies. However, Sterling is holding steady against the Euro in today’s trading session. Data just released indicates that inflationary pressures continue to recede in the UK, following a drop in both input and output producer price inflation for March. With little in terms of macro data today, market participants are likely to track next week’s heavy domestic economic calendar.

US Dollar – US Markets

Improved risk appetite among traders had dampened demand for the US Dollar in yesterday’s trading session. However the US Dollar has recovered against the majors this morning as Chinese growth concerns re-emerged after data revealed weaker than expected economic growth for the first quarter. Yesterday, the sharp rise in weekly jobless claims has raised hopes of an additional round of easing in the US, especially after the Fed Chairman recently questioned the strength of the job market. Fed officials also indicated that interest rates will likely remain low through 2014. Additionally, easing producer price inflation for March has buoyed optimism that inflation would fall below the Fed’s target rate in the near term, thereby strengthening hopes for a new round of QE. Against this backdrop, consumer price inflation data for March is set to grab the spotlight in today’s session with expectations of easing. Additionally, Reuters/Michigan consumer sentiment index will also be keenly tracked to gauge consumer morale in the US.

Euro – European Markets

The Euro moved higher against its major counterparts yesterday following a decline in Italian and Spanish 10 year bond yields. Fears surrounding the European bond market continued to fade after an ECB board member signaled that the central bank could intervene to lower Spanish borrowing costs. An unexpected improvement in Eurozone industrial production for February also aided gains in the Euro against the majors. In today’s trading session the Euro has weakened against US Dollar as fears of a slowdown in the global economy resurfaced, following today’s weak GDP data from China, the weakest in almost three years and dismal US jobless claims released yesterday. The renewed concern of a slowdown in the global economy seems to have erased optimism following yesterday’s drop in Spanish and Italian benchmark bond yields. With the European economic calendar on the light side today, traders are expected to monitor releases from the other side of the Atlantic for further direction.

Other Currencies – Highlights

The Aussie Dollar has retreated against the US Dollar, as dismal first quarter Chinese GDP data prompted traders to shun high yield assets and move towards safe haven currencies. The Chinese GDP growth slowed more than expected to 8.1% for the first quarter of the current year, compared to an 8.9% growth registered in the previous quarter. However, Chinese industrial production and retail sales surpassed market estimates. The dismal Australian trade balance data released earlier this month reveals that headwinds from the Chinese economy are weighing on the Australian economy. Yesterday, the Aussie Dollar had registered gains against the majors, after data revealed a sharp increase in employment figures for March. This upbeat jobs data has dampened the possibility of a rate cut by the Reserve Bank of Australia in its next monetary policy meeting.