Markets Take a Breather

Yesterday’s trading session witnessed decent gains in high yield currencies on the back of strong manufacturing data in China, Europe and the US. However, markets seem to be anxious today on lingering Eurozone debt fears, primarily due to an elusive Greek debt-swap deal and Spanish and French bond auctions due later today. At home, yesterday’s strong manufacturing data helped in allaying fears of an uneven economic recovery to an extent. Data just released indicates that the British construction PMI declined more-than-expected for January.

Pound Sterling – UK Markets

Sterling has added to yesterday’s gains and is hovering close to the 1.2050 level against the Euro. This upward move comes on the back of the upbeat UK manufacturing PMI data for January released yesterday. The data has strengthened market perception that the UK economy may escape a recession. However, the Pound has declined marginally against the US Dollar, although it is still trading above the 1.5800 mark and the trend is still a bull market. The Institute for Fiscal Studies has warned that UK economy is likely to shrink 1.7% in 2012 and 0.9% in 2013. The agency further added that unemployment in the UK may hit 10.7% if Greece, Portugal, Ireland, Spain and Italy leave the Euro. Meanwhile, data just released indicates that the British construction PMI declined more than expected to a reading of 51.4 for January, compared to a reading of 53.2 posted for December. The BoE policy maker, Adam Posen’s speech and crucial bond auctions in Europe are likely to determine Sterling’s movement in today’s session.

US Dollar – US Markets

An elusive Greek accord has dampened investor sentiment and aided the US Dollar to register gains against both the Pound and the Euro this morning. Yesterday, hopes of revival in the global economy received a major boost after manufacturing data across the globe showed an improvement. This newly found optimism prompted traders to shun the US Dollar and move towards high yield currencies. Markets would be keeping an eye on the jobless claims data due today, which is expected to register a drop. Additionally, the Fed Chairman, Ben Bernanke, is scheduled to testify before the House Budget Committee later today wherein he is unlikely to deviate from the dovish tone in the FOMC minutes.

Euro – European Markets

The Euro gave up most of its early session gains against the majors this morning as continuing logjam over Greek debt talks induced traders to lower their position in riskier assets. Reports indicate that officials are urging bondholders to agree to lower coupons. Yesterday, upbeat manufacturing data across the globe boosted the appeal of high yield currencies and led the Euro higher against the US Dollar. Moreover, concerns over the elusive Greek accord were temporarily put to rest after the nation’s Finance Minister, Evangelos Venizelos, stated that the government is “one formal step away from finalising the deal”. On the macro front, investors stay keenly focused on the Eurozone producer price inflation data which is expected to indicate a sharp slowdown. A successful Portuguese bill auction yesterday has set the stage for critical Spanish and French long-term bond auctions today, which are expected to be largely positive.

Other Currencies – Highlights

The Swiss Franc has weakened against the majors this morning after data indicated that the nation’s trade surplus narrowed more-than-expected in December. This can be attributed to weak foreign demand due to the Eurozone debt crisis and an unfavourable exchange rate. Moreover, yesterday’s data indicating an unexpected drop in the Swiss manufacturing PMI for January raised concerns over the health of the Swiss economy. Adding to the woes, retail sales growth in Switzerland slowed in December. Following weak set of economic data from Switzerland, calls have been getting louder to revise the Euro-Franc floor lower from the current 1.2000 levels.