Yesterday’s GDP data confirmed that the UK economy has entered a technical recession and led to an immediate sell-off in Sterling. However, the currency recovered against the majors as speculation of QE3 in the US gained momentum after the Federal Reserve (Fed) indicated that it is ready to add more stimulus if required. The “risk on” sentiment has continued in today’s trading session with consumer confidence in the UK registering a sharp improvement. Markets are keeping a tab on a raft of Eurozone confidence indices, whilst regional manufacturing, jobless claims and pending home sales data in the US are due later today.
Pound Sterling – UK Markets
An unexpected slide back into a recession for the UK economy led to an immediate decline in the Pound, both against the Euro and the US Dollar yesterday. Recent liquidity injections undertaken by the BoE have failed to instil confidence with the services sector registering meagre growth, while construction output and industrial activity showed a contracting trend.
However, the currency clawed back much of its declines against the US Dollar in the later part of the session, amid market speculation of an additional round of easing for the US economy. Additionally, persistent fears surrounding the Eurozone supported gains in Sterling against the Euro.
Today, the Pound is trading on a firmer footing against the greenback as Nationwide’s consumer confidence index revealed a sharp rise for March. However, data from the British Bankers Association, just released, indicated an unexpected decline in mortgage approvals for March.
On the economic front today, the CBI Distributive Trade survey for April is likely to be closely tracked against the backdrop of the upbeat retail sales data released last week.
US Dollar – US Markets
The US Dollar had declined against the majors in yesterday’s trading session after the Fed Chairman, Ben Bernanke, indicated that the central bank would not hesitate to launch another round of easing measures, if required, to ensure continued recovery and keep inflation near its target. A bullish assessment of the US economy, including an upbeat GDP and unemployment rate forecast for 2012, did little to allay the additional stimulus euphoria. Meanwhile, the Fed kept its benchmark interest rate unchanged in yesterday’s monetary policy meeting.
In today’s trading session, the greenback has continued to trade under pressure against both the Pound and the Euro ahead of the first quarter US GDP data due tomorrow, which is expected to reveal a slowdown in the economy. Pessimism ahead of tomorrow’s release has mounted as data released yesterday indicated that durable goods orders in the US fell sharply in March.
Today’s jobless claims data will be closely watched as recent indicators from the job market have not been encouraging. Pending home sales, Kansas manufacturing index and Chicago Fed national activity index are among other releases slated for today.
Euro – European Markets
Yesterday, the Euro moved higher against the US Dollar after the Fed’s monetary policy meeting revived hopes of an additional round of easing for the US economy. Additionally, ECB President, Mario Draghi, has called for a growth pact by the EU leaders, which was immediately backed by the German Chancellor, Angela Merkel.
The Euro has cemented gains against the US Dollar in today’s trading session.
In a noteworthy development the French President, Nicolas Sarkozy, in his attempt to get re-elected, has indicated that he would hold a referendum on Europe's fiscal pact. Questions have been raised over the credibility of the region’s fiscal compact treaty following the recent revisions of fiscal targets by Spain and Italy.
On the economic landscape, markets await Eurozone’s business climate indicator, which is projected to remain flat for April. Additionally, German inflation data for April due today is expected to show a marginal easing trend.
Other Currencies – Highlights
The Kiwi Dollar has advanced against the US Dollar this morning after the Reserve Bank of New Zealand left the benchmark interest rate unchanged at 2.5%. The central bank Governor, Alan Bollard, hinted at a possibility of a rate cut in future. He further cautioned that the Kiwi Dollar is still high, despite a recent fall in commodity prices and warned that it could influence the central bank’s future decisions.
Additionally, Moody’s reaffirmation of its “AA3” credit rating on China with a positive outlook has further underpinned the upward momentum in the Kiwi Dollar. High yield currencies also benefitted amid market speculation of a new round of easing in the US.
The trade balance and unemployment data due next week are also expected to closely influence the central bank’s stance in the near future.
BoE less likely to increase interest rates in May
UK’s CPI figure in spotlight, as the Pound value drops
Sterling slumps after lower than expected CPI results