UK Growth Concerns

Sterling is trading lower against the majors this morning amid continued worries over domestic growth after this morning’s data indicated an annual drop in both like-for-like retail sales and house prices for February. This follows yesterday’s downbeat reading on UK’s Services PMI (Purchasing Managers Index). In this backdrop, it will be interesting to see the stance of the BoE in its monetary policy meeting due later this week. Meanwhile, uncertainty over the Greek private-sector debt swap continues to weigh on the Euro against the US Dollar. Traders also await the second estimate of Eurozone GDP, due later today.

Pound Sterling – UK Markets

The Pound has lost value against its major counterparts this morning, following dismal economic updates. The British Retail Consortium (BRC) reported that like-for-like retail sales in the UK dropped 0.3% Y-o-Y in February, similar to the decline posted in the previous month. Adding to concerns, house prices for February, as reported by Halifax, fell 0.5% compared to the previous month, against expectations for a rise of 0.3%. This follows yesterday’s decline in UK Services PMI for February to 53.8, lower than expectations for a reading of 54.9. Considering that two MPC (Monetary Policy Committee) members wanted to raise quantitative easing purchases by £75 billion last month, it will be interesting to see the stance of the BoE (Bank of England) later this week, with expectations currently for asset purchase target to remain unchanged. With a very light economic calendar today and growth concerns predominating, the Pound is expected to trade week.

US Dollar – US Markets

The US Dollar has continued to gain against the majors this morning, following a rise in risk aversion, after disappointing economic data globally. Since yesterday most economic updates have been below expectations and this has led a flight to safety amongst traders. In the US, factory orders fell 1% in January, the most in 15 months. However, the US services sector expanded in February at the fastest pace in a year. Lending strength to the US Dollar was yesterday’s statement by the Dallas Federal Reserve (Fed) President, Richard Fisher, who reiterated his stance against more stimulus and indicated that further bond purchases seemed unlikely considering the recent upbeat economic data. There are no major economic releases in the US today and we expect the US Dollar to gain in strength as the session progresses. ADP jobs data, coupled with the non-farm productivity report, due tomorrow, are expected to provide interesting insight on the US labour market.

Euro – European Markets

The Euro has failed to hold on to the 1.32 level against the US Dollar amid persistent concerns over the participation of private creditors in the bond swap deal. Greek Finance Minister, Evangelos Venizelos, warned private bondholders yesterday to accept the bond swap because it was the best deal they would get. Meanwhile, German private investor lobby group, DSW opined that private investors in Greek government bonds should reject the voluntary swap offer. Thursday will be a key day as private bondholders have until then to decide on their participation in the bond swap and the European Central Bank will meet on its rate decision. Meanwhile, traders are eyeing the second estimate of Eurozone GDP growth, due later today, which is expected to confirm that the Eurozone economy contracted 0.3% Q-o-Q in the fourth quarter of 2011.

Other Currencies – Highlights

The Aussie Dollar has slipped against its major peers, after the Reserve Bank of Australia indicated that there was scope for further rate cuts if growth concerns persist. The central bank, in its monetary policy meeting, left the overnight cash-rate target unchanged at 4.25% in line with market expectations. Traders are expected to closely monitor the key economic releases from Australia during the course of the week for further cues on the possible actions that the central bank may undertake in the near future. Meanwhile, data due later today is expected to indicate a slowdown in the GDP growth for the fourth quarter. In view of the lower risk appetite, we expect the Aussie Dollar to trade lower today.