Positive French Data Lifts Sentiment

Risk sentiment has shown a revival in today’s trading session, aided by upbeat French business confidence data and a firm start to the European equity session. This follows the release of dismal manufacturing data in Europe and China yesterday, which had supported gains in the US Dollar. Later in today’s market session, traders are expected to focus on US new home sales data for further clues to future direction. At home, data out earlier today indicated a decline in British consumer confidence. This comes on the back of yesterday’s weak UK retail sales and has strengthened market speculation of further easing measures by the BoE.

Pound Sterling – UK Markets

Sterling has lost some ground against the Euro, even as it has managed to garner gains against the US Dollar. Data just released indicates that loans for house purchases, as measured by the British Bankers' Association, dropped more than expected for February. Recent economic indicators appear to indicate that the revival of consumer morale in Britain has run out of steam. Following the downbeat shop price inflation data released earlier this month, retail sales data out yesterday was lower than expected. Adding further to the gloom for the retail landscape, Nationwide revealed a decline in consumer confidence for February. The subdued data has once again stoked thoughts of a double-dip recession in the UK. Yesterday, Sterling slipped against the US Dollar as concerns of a slowdown in the global economy re-emerged, following weak PMI readings from Eurozone and China. However, during the day, the Pound was relatively unscathed against the Euro as disappointing retail sales data from Britain was offset by dismal manufacturing activity from Eurozone nations.

US Dollar – US Markets

The US Dollar has reversed yesterday’s gains against the majors and is trading lower this morning. Earlier in the session hawkish comments by St.Louis Fed President, James Bullard, allayed concerns over the need for further stimulus and aided the US Dollar to consolidate gains against the majors. Bullard indicated that US monetary policy may be at a “turning point” and the central bank’s first interest rate increase could come as soon as late 2013. Meanwhile, positive data from the US bolstered optimism that the economy remains insulated from the weakness emerging out of other key global economies. Yesterday’s data highlighted an uptrend in the US labour market, with data indicating that initial jobless claims dropped to their lowest level in four years. Another release revealed that the house price index remained unchanged for January. Investors look forward to the release of new home sales data later today which is expected to be largely upbeat.

Euro – European Markets

The Euro has gained sharply against the US Dollar this morning as “risk on” flavour re-emerged among traders, after data released earlier today indicated an improvement in French business confidence and production outlook. Additionally, a report just out reveals better than expected Italian retail sales for January. Market concerns over a Greek default petered out after the ECB President, Mario Draghi, opposed the nation’s exit from the Eurozone and assured that it has a chance to escape its current “downward spiral” if it implements crucial reforms approved by the Parliament. The Euro had slid against the US Dollar in yesterday’s trading session, as concerns over the health of the Eurozone economy dented risk appetite among market participants. The dismal manufacturing PMI readings across Europe, coupled with continued decline in new industrial orders, have raised concerns about the region’s manufacturing sector. Additionally, risks of a spread of the crisis re-emerged after the Spanish 10-year bond toppled the 5.5% mark for the first time since January 2012.

Other Currencies – Highlights

The Swiss Franc has climbed against the US Dollar this morning after the KOF Swiss Economic Institute lifted its economic growth estimate for 2012 to 0.8% from the previous estimate of 0.2%. This week’s upbeat economic releases have underpinned the strength of the Swiss economy. Yesterday, data indicated that the Swiss trade surplus widened more-than-expected for February on the back of a surge in exports, coupled with a sharp decline in imports, while data out earlier this week revealed more-than-expected rise in the nation’s industrial production for the fourth quarter. However, the Swiss National Bank Board Member, Jean-Pierre Danthine, indicated yesterday that the Swiss Franc cap against the Euro remains the main focus for policy makers, as risks of deflation have not completely disappeared.