CBI Outlook – A Pleasant Surprise

Upbeat comments from the Confederation of British Industry (CBI) that domestic economic growth will gather pace in the second half of this year has come as a positive surprise to market participants. However, the new found optimism in the Eurozone, on the back of the much awaited Greek Parliamentary approval for the austerity bill, has tilted the scale in favour of the Euro against the Pound. In the US, Barack Obama’s fiscal 2013 budget proposals to Congress are in focus today, especially with rating agencies raising concerns in recent times over the country’s debt levels.

Pound Sterling – UK Markets

Sterling has picked up momentum against the US Dollar and is trading above the 1.58 level, after the CBI dampened prospects of a technical recession in the UK. The CBI indicated that the UK economy will start growing again in the first quarter of 2012 and will gather pace in the second half of the year. The improvement in forecasts has ebbed expectations of any further stimulus by the central bank. On the flipside, the Pound has lost ground against the Euro, as the Parliamentary approval for the Greek austerity budget spurred an air of optimism that Greece may possibly avoid a default. Market participants are likely to keep a close eye on a number of important economic releases during the week. The focus will be on the CPI numbers slated for Tuesday, followed by the much awaited BoE’s quarterly inflation report on Wednesday.

US Dollar – US Markets

The US Dollar has retreated against its major counterparts this morning, as fears of a disorderly Greek default took backstage, after the Greek Parliament passed a package of austerity measures needed to secure international aid. Maintaining the Fed’s dovish stance the Fed Chairman, Ben Bernanke, opined that the sluggish housing market is a drag on the US economic recovery, which makes low interest rates imperative. Meanwhile, data released on Friday indicated that the Thomson Reuters/ University of Michigan consumer confidence index declined more-than-expected for January. With no economic release on tap today, markets are expected to keep an eye on Barack Obama’s fiscal 2013 budget proposals to the Congress. The proposal is expected to provide insights on how the nation plans to deal with its fiscal issues, especially with rating agencies raising concerns over the country’s debt burden.

Euro – European Markets

The Euro had moved close to the 1.33 level against the US Dollar, after the Greek Prime Minister, Lucas Papademos, won an approval from Parliament for austerity measures needed to secure the €130 billion aid from the Troika. The positive outcome in Greece has managed to soothe fears of a possible disorderly default by the nation. For the deal to pass through, the balance of €325 million in the Greek austerity plan still needs to be agreed by the main political parties and presented to the Eurogroup for approval on Wednesday. Traders are expected to keenly monitor the Eurozone GDP data due later this week to gauge the impact of increased austerity measures in the periphery nations on the region’s growth. Data released earlier today indicated that the annual German wholesale price inflation remained unchanged at 3% for January.

Other Currencies – Highlights

The Japanese Yen has weakened against Sterling and the Euro after data showed that the nation’s GDP contracted more-than-estimated in the fourth-quarter of 2011. On a sequential basis, Japanese economy contracted an annualised 0.6% in the fourth quarter of 2011, compared to a 1.7% growth recorded in the third quarter of 2011. On the positive side, the tertiary industry index in Japan grew more-than-expected for December. Additionally, demand for safe haven currencies has weakened in the backdrop of prevailing Greek optimism and a strong opening to the European equity markets. Meanwhile, fears of Japanese intervention in the currency markets remain elevated, after Japan’s Finance Minister, Jun Azumi, reiterated that the nation will intervene in the financial markets to counter speculative moves in the Yen.