Spain Buys Time

Over the weekend, the Eurozone regional governments agreed to provide up to €100 billion to save the troubled Spanish banking sector. Though further details of the bailout plan are awaited, markets have cheered the development with the Euro posting handsome gains against the US Dollar this morning. Additionally, upbeat Chinese trade data and easing inflation aided the “risk on” trading sentiment. With a light global economic calendar today, the outcome of the Greek elections during this weekend is likely to occupy investors minds during the course of the week. At home, data released earlier today indicated that the British employment confidence stabilised for May.

Pound Sterling – UK Markets

The Pound has recorded decent gains against the US Dollar this morning amid higher risk appetite following the Spanish banking bailout news and encouraging Chinese trade data. Meanwhile, data out earlier today revealed that the Lloyds employment confidence barometer in the UK remained steady at a reading of -59 for May. However Sterling has retreated marginally against the Euro in today’s trading session on account of easing worries over Spain’s banking sector. Striking a cautious note, the Chancellor of the Exchequer, George Osborne, warned that the UK’s recovery faces huge risks from a disorderly break-up of the Eurozone. With little on offer in terms of economic releases today, industrial production and NIESR GDP estimate scheduled for release tomorrow is expected to provide insights into the impact of the Eurozone debt crisis on the British economy. Additionally speeches by the BoE Governor, Sir Mervyn King and Chancellor, George Osborne slated later this week is expected to provide hints over the future course of the nation’s monetary and fiscal policy.

US Dollar – US Markets

Higher risk appetite among market participants has dampened demand for the US Dollar in today’s trading session. “Risk on” mood among traders was evident following news of a plan to shore up the ailing Spanish banks. In China, easing inflation has strengthened optimism that the Chinese central bank might resort to further easing measures to support growth. On the domestic front, the US President Barack Obama indicated that the US economy is 'not doing fine'. Even as Friday’s data revealed a narrower trade deficit for April, a decline in exports due to weak global demand poses a threat to the nation’s recovery. With no major economic indicators on tap today the spotlight rests on consumer price inflation, retail sales and Reuters/Michigan consumer sentiment index slated later this week. This session is expected to track the outcome of French bills auction and news flow emanating from the Eurozone.

Euro – European Markets

A decision by the EU to provide as much as €100 billion as bailout to Spain to recapitalise its banking sector led the Euro to breach the 1.26 mark against the US Dollar. The news came as a much needed relief following a downgrade of the nation’s credit rating by Fitch on Friday. Additionally, industrial production in France unexpectedly improved for April, thereby soothing worries over the French economy especially after cautious comments by the nation’s central bank last week. Moreover, upbeat Chinese trade data has boosted demand for high yield assets. To add to the string of positive news flow, the German weekly Spiegel reported that EU leaders are considering a true fiscal union in a move to combat the crisis in an effective way. With an uneventful economic calendar for the session, the Euro is set to track the outcome of the French bills auction slated later today. Additionally, the outcome to the Greek re-election this weekend is also likely to act as a catalyst for risk.

Other Currencies – Highlights

In today’s trading session, the Japanese Yen has declined sharply against the high yield currencies as optimism brewed among traders after the Eurozone finance ministers agreed to a plan to recapitalise Spain’s debt stricken banks. Moreover, robust Chinese trade data also aided risk appetite. Additionally, weak economic data from Japan weighed on the Yen. Data revealing deterioration in Japan’s Business Index Survey of large manufacturing conditions in the second quarter, coupled with a weak machine tools orders data for May, clouded the nation’s economic outlook. Meanwhile, the Bank of Japan board member, Sayuri Shirai, cautioned that the European debt crisis could hurt Japan's economy and its exports.