The Pound Subdued

The Pound is trading marginally lower against the Euro this morning after the British Chambers of Commerce revised its growth forecast for the economy in 2012, to 0.6% from its earlier estimate of 0.8%. UK Services Purchasing Managers' Index (PMI) for February, just released, indicates a reading of 53.8, against expectations for a reading of 54.9. Meanwhile, in the Eurozone, concerns rose that Greece may not be able to garner enough support from its private lenders to participate in the voluntary write-down of its debt. Additionally, Eurozone composite PMI for February fell to 49.3 from 50.4 in January and lower than the preliminary estimate of 49.7.

Pound Sterling – UK Markets

The Pound has lost ground against the majors, this morning after the British Chambers of Commerce revised down its growth forecast for the British economy in 2012 to 0.6% from 0.8% and warned that the economy faced "serious challenges". However, it ruled out prospects of the economy sliding into a recession this year and requirement of further easing by the BoE. Meanwhile, data just released indicates that UK Services PMI for February declined to a level of 53.8, lower than expectations for a reading of 54.9. The BoE, in its monetary policy meeting due later this week, is expected to leave its benchmark interest rate and asset purchase target unchanged at current levels. Market participants also await industrial output data and NIESR’s GDP estimate in the week ahead.

US Dollar – US Markets

The US Dollar has climbed against Sterling and the Euro, amid concerns over growth in the UK and the debt crisis in Eurozone. Greece’s private bondholders have just four days to agree to the terms of the debt restructuring. Adding fuel to fire, China spooked markets by setting a lower 2012 economic growth rate target. In contrast to most of the Fed’s policymakers recent statements, Federal Reserve Bank of San Francisco President, John Williams, stated that the central bank should add additional stimulus to support the recovery in the job market. The weekly jobless claims, released on Friday, remained at multiyear lows, while data this week is expected to indicate that US employers added more than 200,000 jobs for a third straight month. The Fed rate decision scheduled next week will surely be closely watched in this background. Among the major releases for today, US factory orders and non-manufacturing index are expected to register a drop. In the absence of any positive triggers, we expect the US Dollar to maintain its strength in the session ahead.

Euro – European Markets

The Euro has declined against the US Dollar after reports indicated that Greece may fail to garner enough participation from its private lenders in the voluntary write-down of its debt. Additionally, markets have started to worry about the legitimacy of the recent fiscal compact treaty, after the Spanish Prime Minister, Mariano Rajoy, stating that his country will miss its budget deficit target for this year, while French presidential candidate, Francois Hollande, reiterated that he would renegotiate Europe’s latest fiscal treaty. Sparking further concern, the Netherlands announced that its “provisional” public 2012 deficit would rise to 4.5% of GDP from 4.1% forecast earlier. Moreover, data released this morning indicates that Eurozone composite PMI for February fell to 49.3 from 50.4 in January and lower than the preliminary estimate of 49.7. This adds to Friday’s disappointing updates from the Eurozone – dismal German retail sales and Greek credit rating downgrade by Moodys. Markets are now looking ahead to release of Eurozone retail sales for January and the French bill auction for further cues.

Other Currencies – Highlights

The Japanese Yen has rallied against the majors after risk aversion spurred buying interest in safe haven currencies. Concerns about global growth prospects arose after the Chinese Premier, Wen Jiabao, indicated a growth target for the Chinese economy for 2012 that was the lowest in 8 years. Economic data, both in the Eurozone and in the UK, has not been encouraging this morning, while Eurozone retail sales, due later today, is expected to register a decline for January. A weak opening to the European equity markets also contributed to the strength in the safe haven currencies. Among the key events for the week that are likely to determine risk appetite, Greece’s private creditors are expected to decide on whether to accept the terms set for restructuring of Greece’s debt.