Sterling Weathers U.K. Budget Announcement

Yesterday, the keenly awaited UK annual budget was perceived as largely neutral for the Pound, with major highlights being the wide ranging tax reforms, focus on reducing the budget deficit and public debt and an upward revision to the U.K 2012 economic growth forecast. Meanwhile, following yesterday’s dovish BoE’s minutes, data just out indicates that retail sales grew less than expected for February. Data released this morning revealed lower than expected German, French and Eurozone manufacturing PMI. This comes on the back of dismal Chinese manufacturing data earlier today. All eyes are on jobless claims data in the U.S. which is expected to show that the labour market continues to recover.

Pound Sterling – UK Markets

The Pound has moved higher against the Euro this morning following dismal manufacturing data across the Eurozone. Meanwhile data just out indicates that the annual retail sales grew less than expected by 1.0% for February, compared to a 2.0% rise posted for January. In the much awaited annual budget yesterday, the Chancellor, George Osborne, proposed wide ranging tax reforms. The Chancellor cut the top rate of income tax, reduced corporate tax and scrapped age-related allowances. The Office for Budget Responsibility indicated that the UK economy may avoid a technical recession and upwardly revised the current year growth forecast. On the fiscal front, Osborne indicated that the budget deficit is falling and is forecast to reach 7.6% next year and has estimated public sector net borrowing to reduce to 1.1% of GDP by 2016-17. During yesterday’s session, the Pound witnessed marginal pressure against the US Dollar after data revealed a higher than expected public sector net borrowing for February. Adding to Sterling’s woes, the BoE’s March meeting revealed that two Monetary Policy Committee members voted to expand the central bank’s asset purchase program by £25 billion. However, all members voted to retain the benchmark interest rate at a record low of 0.5%.

US Dollar – US Markets

The U.S. Dollar has strengthened against the majors as fears surrounding the global economy resurfaced. Data released earlier today indicated deterioration in the manufacturing sector activity in Germany, China, France and Eurozone. Yesterday, the nation’s home sales for February failed to match market estimates. Meanwhile, the Fed Chairman, Ben Bernanke, cautioned that higher energy prices could affect the nation’s consumer spending and could thereby weaken the US economy. Markets expect the positive news flows from the job market to continue with the weekly jobless claims due later today expected to remain stable at a four-year low. Markets are also expected to track the house price and leading index data for further clues over the state of the US economy.

Euro – European Markets

The Euro has reversed its initial session gains against the majors and is trading lower after data indicated that German and French manufacturing activity unexpectedly contracted for March. Additionally, the contraction in manufacturing activity in the Eurozone also accelerated. This data comes on the back of concerns of a slowdown in the Chinese economy after data released earlier today indicated that Chinese manufacturing PMI slipped to the lowest level since March 2009. However, earlier in the session, the Euro had registered gains against the majors after the ECB President, Mario Draghi, reportedly opined that the worst of the sovereign debt crisis is over and the situation has stabilised. On the macro front, the Euro is likely to track the region’s industrial new orders and consumer confidence data scheduled for release later today.

Other Currencies – Highlights

The Kiwi Dollar has declined against the US Dollar following the release of New Zealand’s GDP report which indicated that the nation’s economy grew 0.3% in the fourth quarter of 2011, slower than the market consensus of a 0.6% rise. This has fueled market speculation that the central bank may keep the key interest rate unchanged in the near future. The Kiwi Dollar also came under pressure after HSBC manufacturing PMI revealed that the Chinese manufacturing sector contracted for the fifth successive month for March. Moreover, weak manufacturing data across the Eurozone has weighed on risk appetite.