Spanish Spotlight Intensifies

Market concerns surrounding Spain’s fiscal situation failed to abate, as the cost for insuring Spanish debt rose to an all-time high yesterday. Against this backdrop, market participants will keenly eye the outcome of Spanish short term bond auction and European sentiment indices due later today. Across the Atlantic, retail sales for March surprised market participants on the upside yesterday and led gains in high yield currencies. Today’s industrial production and housing data are expected to garner some market interest. At home, consumer price inflation rose to 3.5% for March, still below the BoE’s 2% target. This has shifted focus onto tomorrow’s minutes of the BoE’s latest policy meeting.

Pound Sterling – UK Markets

Robust US retail sales data had helped Sterling to move above the 1.59 mark against the US Dollar late yesterday, due to resulting high yield moves. In today’s trading session, the Pound has climbed marginally against the greenback and is holding versus the euro. Data just out indicated that annual consumer price inflation in the UK rose to 3.5% for March, still below the BoE’s 2% target. Another set of data revealed that the retail price index climbed for March, although at a slower pace than recorded for February. These inflation figures are expected to aid the central bank’s policymakers in deciding their stance in the next monetary policy meeting. With no other significant releases on tap for the day, investors remain focused on tomorrow’s jobs data, coupled with the BoE minutes of latest monetary policy. In today’s trading session, the Pound is expected to track risk sentiment prevailing following the Spanish bond auction.

US Dollar – US Markets

A better-than-expected increase in US retail sales for March yesterday eased fears surrounding global growth and prompted traders to move towards high yield assets. The US Dollar has taken a breather in today’s trading session and is trading almost flat against the Euro and has registered a marginal decline against the Pound. St. Louis Fed President, James Bullard, expressed confidence over US growth prospects by indicating that the nation’s economic growth will quicken from a range of 2.5% to 2.7% during the first quarter to a rate of 3% for 2012. However, New York Fed manufacturing index and NAHB’s house price index, released yesterday, have shown some signs of weakness for the month of April. In today’s session, markets are expected to closely monitor industrial production and housing starts data to gauge the performance of the US economy towards the end of the first quarter.

Euro – European Markets

Despite worrying signals from the Spanish economy, the Euro had advanced against the US Dollar in yesterday’s trading session, as better than expected retail sales growth in the US spurred optimism over global economic recovery. Meanwhile, persistent fears over Spanish debt woes have not allowed the euro to pare losses against the Pound this morning. Yesterday Spain's Economy Minister, Luis de Guindos, admitted that the nation is heading towards its second recession since 2009, as the Spanish 10-year government bond yields spiraled above 6%. Today’s movement in the Euro is likely to be dominated by the outcome of the Spanish bills auctions, as well as German investor confidence and Eurozone consumer price inflation data.

Other Currencies – Highlights

Hints of a possible rate cut by the Reserve Bank of Australia (RBA) have led the Aussie Dollar lower against the US Dollar this morning. The minutes of the central bank’s latest policy meeting revealed that an interest rate cut could be on the cards, if inflation eases further. This has shifted focus onto inflation data due next week for further cues over the stance that the RBA may take in its next monetary policy meeting. Additionally, a decline in the Chinese FDI for March suggested weakness in Australia’s largest trading partner and prompted investors to shun the Aussie and move towards safe haven currencies. With concerns related to Spain continuing to dominate market sentiment, investors also await the release of Westpac leading index scheduled for release tomorrow.