The G20 provided much needed relief to Eurozone members during the weekend by increasing the firepower of the IMF’s rescue fund. However data released earlier today indicating a contraction in manufacturing activity across Eurozone and China, coupled with worrying political developments in Europe, has weighed on the Euro. Across the Atlantic, the Federal Reserve’s monetary policy meeting scheduled for this week is likely to be overshadowed by Bernanke's post-meeting press conference and the initial estimate of the first quarter growth.
In the UK, the focus this week is on the preliminary first quarter GDP numbers slated for Wednesday which should provide direction to Sterling against the majors.
Pound Sterling – UK Markets
On Friday Sterling breached the 1.61 mark against the US Dollar as a strong retail sales report for March underpinned evidence that the economic recovery is on track. The gains reflected the continued uptrend witnessed during the previous week after minutes of the BoE’s latest monetary policy meeting dampened speculation over further easing.
In today’s trading session, the Pound has strengthened against the Euro following subdued manufacturing PMI’s across the Eurozone. Additionally, market participants are concerned, as French Socialist candidate, Francois Hollande, moved a step closer to becoming the first Socialist president of France by beating President, Nicolas Sarkozy, in the first round of elections.
With an apparently quiet day in terms of macro releases, market participants are keenly focused on Wednesday’s first quarter GDP data which is expected to show that the economy has managed to avoid a technical recession.
US Dollar – US Markets
On Friday, the US Dollar weakened against its major counterparts after G20 countries agreed to extend $430 billion in fresh funding to the IMF to tackle the Eurozone debt crisis. Moreover, strong German business confidence and robust British retail sales contributed to the weakness in the greenback.
The US Dollar has reversed Friday’s losses against the Euro this morning after data earlier today revealed that manufacturing activity across the Eurozone and China continued to contract for April. Moreover, the outcome of the first round of elections in France and uncertainty over the Eurozone’s political arena strengthened the demand for safe haven currencies.
Markets are expected to closely monitor the critical first quarter GDP data scheduled during the week to gauge the strength of the US economic recovery. Additionally the Fed Chairman’s press conference following the monetary policy meeting on Wednesday is expected to provide further insight into the policy makers decisions.
Euro – European Markets
The Euro is trading on a weaker footing against the majors this morning after data released earlier today revealed that manufacturing activity across the Eurozone, including France and Germany, continued to contract for April. Additionally the Spanish 10 year bond yield breached the 6% mark in today’s session on escalating fears over the outlook for the Eurozone economy.
Recent developments in the European political arena have prompted market participants to adopt a cautious approach. The first round of the French Presidential election has fueled concerns that Socialist, Francois Hollande’s win might hamper Nicolas Sarkozy’s efforts to resolve the region’s debt crisis.
Other than the outcome of French and German bills auction, investors are likely to stay focused on the outcome of Netherlands PM, Mark Rutte’s emergency cabinet meeting later today.
Other Currencies – Highlights
The Aussie Dollar has slipped against the US Dollar this morning amid heightened speculation that the Reserve Bank of Australia might lower its benchmark interest rate in its next monetary policy meeting after data released earlier today revealed that the nation's producer prices fell unexpectedly for the first quarter.
Speculation of a rate cut is expected to strengthen further, as data scheduled for release tomorrow is expected to indicate that inflation eased for the first quarter. Tomorrow’s data is crucial as minutes of the RBA’s latest monetary policy meeting had indicated that the central bank would lower interest rates if inflationary concerns remain subdued.
Fears of a global slowdown weighed on the high yield currencies. Data released earlier today revealed that manufacturing activity in China and Eurozone contracted for April. Moreover, worrying political developments in Europe also dampened risk appetite among market participants.
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