European Data Spurs Optimism

A decent response to the Spanish bond auction yesterday and upbeat German business confidence data released earlier today has quelled some fears surrounding the Eurozone and has lent support against the majors. In the absence of major catalysts today, focus would be on the outcome of the G-20 meeting, wherein markets await clarity on contributions from various member countries. Across the Atlantic, macro indicators released yesterday disappointed investors across varied spheres including labour, manufacturing and housing, raising concerns over inherent sluggishness across sectors and fanning market speculation of QE3. At home, following remarkable gains for Sterling during the week, data just out indicated that retail sales grew for March.

Pound Sterling – UK Markets

Sterling has continued to hold onto its gains against the US Dollar this morning, still seemingly buoyed by the BoE minutes released earlier this week. Following some encouraging signs in the domestic labour market, data just released indicated that retail sales in the UK surged for March. However, an unexpected improvement in German business confidence for April has weighed on the Pound against the Euro. Yesterday BoE policymaker, Adam Posen, instilled confidence among market participants as he opined that the British economy is healthier than upcoming official data is likely to show in the first half of the year. Hawkish comment from the policymaker has strengthened market belief that the central bank is likely to avoid additional easing in its rate setting meeting next month. Nevertheless, he expressed concerns that underlying inflation pressures might compel the central bank to rethink its policy. In an absence of any significant economic data for the day, the Pound is likely to track the broader risk sentiment prevailing in the market.

US Dollar – US Markets

In today’s trading session, the US Dollar has retreated against the majors after data indicated that German business confidence surprisingly climbed for April. Meanwhile, disappointing US economic data has cast doubts over the strength of the economic recovery and has once again rekindled hopes of additional easing for the US economy. Yesterday’s disappointing jobless claims has provided food for thought to the concerns raised by the Fed Chairman earlier, over the recovery in the job market. Additionally, an unexpected decline in existing home sales, coupled with weak manufacturing activity in the Philadelphia region, suggests that the economy seems to be deteriorating across various verticals. Lack of any significant macro indicator in today’s trading session leaves the movement in the US Dollar to be driven by newsflows emanating from the Eurozone, along with the outcome of the G-20 meeting.

Euro – European Markets

The Euro has moved higher against the majors this morning, after data released earlier today indicated that German business confidence unexpectedly improved for April. However, another set of data revealed an unexpected acceleration in German producer price inflation for March. Although Spanish bond auctions were well received yesterday, the borrowing costs for the nation climbed to the highest level since December. French auctions mirrored its Spanish counterpart amid market rumors that the nation might become a victim to a possible downgrade in the near future. Data indicating a sharp decline in Italian industrial orders, along with deterioration in Eurozone consumer confidence, added to woes. In absence of major catalysts today, traders would focus on the final round of the G-20 meeting and French elections on Sunday. Additionally, markets await the crucial manufacturing PMI readings across Europe due next week.

Other Currencies – Highlights

The Yen has weakened against the majors amid market speculation that the Bank of Japan (BoJ) may undertake additional easing measures in its monetary policy meeting due next week. Reinforcing expectations the BoJ Governor, Masaaki Shirakawa, reiterated that the central bank will continue to pursue monetary easing until its inflation target is achieved. IMF official, Naoyuki Shinohara, also echoed similar sentiment supporting further easing to support the still fragile economy. Data released earlier today indicating a weaker than expected tertiary industry activity for February has highlighted the weak state of the economy. Additionally, a report released earlier this week revealed that Japanese trade balance swung to deficit for March. The inflation reading due next week is expected to grab market attention as it is expected to closely influence the central bank’s monetary policy decision.