Weak Euro, Strong Dollar

The much awaited International Swaps and Derivatives Association (ISDA) meeting on Friday concluded with the decision that the Greek debt deal amounted to a “credit event”. This coupled with strong US non-farm payrolls data supported gains in the US Dollar on Friday. Against this backdrop, tomorrow’s policy meeting in the US will be keenly watched. Meanwhile, today’s dismal trade balance data in China reignited concerns about global economic recovery. Markets today await the outcome of EU finance ministers meeting aimed at giving the final nod for the second Greek bailout package. At home, Lloyds employment confidence has shown an improvement for February.

Pound Sterling – UK Markets

Sterling remains steady against the Euro and the US Dollar this morning despite signs of improvement in the UK economy. Data released earlier today indicated that Lloyds employment confidence index registered an uptick for February, while the BDO Business trends survey indicated that optimism among businesses rose to a nine-month high level. This has led to cautious optimism about the employment and investment scenario in the UK. Additionally, the NIESR on Friday estimated that GDP in the UK rose 0.1% for the three months to February, compared to its previous estimate of a 0.2% decline for the three months to January. The ISDA’s confirmation that the Greek debt deal amounted to a “credit event” also favoured the Pound against the Euro. Meanwhile, data released on Friday indicated an unexpected decline in the British industrial production for January.

US Dollar – US Markets

The US Dollar is trading almost flat against the Euro this morning. Initially, it had shown resilience against the majors after Friday’s upbeat non-farm payroll report signaled strengthening of the economic recovery and reinforced optimism that the Federal Reserve may refrain from embarking on further stimulus. Additionally, increased risk aversion following the ISDA declaration of the Greek debt deal as a “credit event” and data indicating more-than-expected Chinese trade deficit prompted traders to take refuge in the US Dollar. The traders are now focused on the Federal Reserve’s monetary policy meeting scheduled for tomorrow. In the absence of major economic releases for the session, the US Dollar is likely to respond to changes in risk sentiment emerging from the Fed’s interest rate decision as well as retail sales data slated for release tomorrow.

Euro – European Markets

The ISDA’s ruling on Friday that the Greek debt swap deal constituted a “credit event” that would trigger credit-default swaps has limited gains in the Euro against the US Dollar this morning. Following the deal, Fitch downgraded its rating on Greece to “Restricted Default” from “C”. Denting the sentiment further, the ECB executive board member, Benoit Coeure, cautioned that the region will go through a "very mild recession" this year and a strong firewall is needed to battle this crisis. On the macro front, data released earlier today indicated a contraction in Italian GDP, while the annual German wholesale price inflation slowed for February. In today’s trading session, the Euro is expected to track the outcome of the EU finance ministers meeting aimed at signing the final approval for the Greek second bailout.

Other Currencies – Highlights

The Yen has strengthened against the majors after data released earlier today indicated a higher-than-expected rise in Japanese core machinery orders for January. Additionally, Japan’s corporate goods price index edged higher for February. However, the nation’s Prime Minister, Yoshihiko Noda, suggested that the currency remains overvalued in terms of economic fundamentals and warned against speculative currency moves. For tomorrow, markets will be closely watching the outcome of the Bank of Japan’s (BoJ) rate setting meeting, wherein the central bank is expected to keep its interest rate unchanged and refrain from additional easing.