Yesterday, high yield currencies traded lower amid worries that Greece may be unable to meet the deadline for debt restructuring and after data indicated a contraction in Eurozone’s GDP for the fourth quarter. With little on offer in terms of economic releases in Europe today, market participants are eagerly awaiting the Automatic Data Processing (ADP) employment figures in the US. The outcome of monetary policy meetings of the BoE and the ECB is due tomorrow and is likely to be in line with market consensus. At home, data released earlier today indicated that shop price inflation eased for February.
Pound Sterling – UK Markets
Sterling is holding its position against the Euro and the US Dollar this morning. A survey by the British Retail Consortium indicated that UK shop price inflation for February eased to a near two year low, suggesting that retailers are still struggling to raise prices amid weak consumer confidence. Yesterday’s data indicating an unexpected fall in the British house prices and a bleak retail sales report have also renewed concerns about the health of the UK economy.
Despite increasing calls for lowering austerity measures, the Chancellor, George Osborne, indicated that there would be no easing of austerity in this month's Budget as any tax cut “has to be paid for”.
In absence of any major catalyst today, market participants await the BoE’s monetary policy decision tomorrow, wherein the central bank is expected to adopt a wait and watch strategy.
US Dollar – US Markets
The US Dollar is holding firm against the Euro and Sterling ahead of a key private sector payroll data due later today. The ADP Employer Services data, slated for today, is expected to indicate that US jobs growth quickened last month.
Yesterday, the US Dollar posted robust gains against the majors amid continued concerns over implementation of the Greek debt swap deal and after data indicated that the Eurozone economy contracted in the fourth quarter of 2011. Further weighing on the risk appetite were growth concerns in emerging economies, following dismal GDP data from Brazil and the earlier lowering of Chinese economic growth projection for 2012.
We expect the US Dollar to track headlines emerging from Greece and rate decisions by two major European banks due tomorrow.
Euro – European Markets
The Euro has stablised against the US Dollar after recording losses during yesterday’s trade.
Yesterday, the Euro posted losses against the US Dollar as markets continued to worry about the possibility of a chaotic Greek default, with the deadline for the debt-swap deal approaching closer.
Worries over the region’s growth prospects also weighed heavily on the Euro. Yesterday, data indicated that the European economy shrank by 0.3% for the fourth quarter. Additionally, data due later today is expected to reveal a slowdown in German factory orders growth for January.
Tomorrow is a crucial day with traders keenly awaiting the outcome of the Greek debt swap deal along with the ECB President, Mario Draghi’s view on the region’s economic outlook following the monetary policy decision.
Other Currencies – Highlights
The Swiss Franc is trading almost flat against the majors this morning. Data released earlier today indicated that the Swiss unemployment rate remained steady, while foreign currency reserves declined marginally for February.
In a significant move, the Swiss National Bank (SNB) will today publish an investigation into transactions by its board members and their deputies after currency purchases prompted the former SNB Chief, Philipp Hildebrand, to quit this January.
Meanwhile, markets are expected to closely monitor tomorrow’s inflation data to gauge the stance of the SNB. Markets expect deflation in the Swiss economy to continue.