The IFO index of German business confidence released this morning showed a higher measure of sentiment across all sectors. This has been tempered by downbeat comments by the Italian Prime Minister on Spain’s finances have reignited contagion fears in the region. Against this backdrop, the outcome of the EU finance ministers meeting due later this week will be keenly awaited. In today’s session, traders are eyeing US pending home sales and regional manufacturing data for further cues on the health of the US economy.
At home, in the absence of major economic releases today, Sterling is expected to track wider market movements
Pound Sterling – UK Markets
Sterling has moved marginally lower against the US Dollar and the Euro as markets remain worried about consumer morale in the UK. The British Bankers' Association on Friday revealed that U.K. mortgage approvals fell by more than expected.
Meanwhile on Friday, BoE policymaker Martin Weale rekindled optimism after he suggested that the UK economy has skirted another recession and probably showed some growth in the first quarter. Against this backdrop investors appear bullish as they look ahead to the final reading of the fourth quarter GDP due later this week.
Sterling's performance this week will be dictated by a number of important releases including current account, Nationwide house prices, mortgage approvals, consumer credit and M4 money supply.
US Dollar – US Markets
Market worries surrounding the global economic outlook appear to have set the Dollar on firmer ground at the start of this week as investors seek haven in the Greenback.
Striking a cautiously optimistic tone, Atlanta Fed President, Dennis Lockhart, indicated that the US economic recovery is gaining traction despite a weak job market and soft consumption. However, he warned that the possibility of QE3 cannot be ruled out if the economy falters.
On Friday, data indicated that new home sales unexpectedly declined for February, with home prices rising to their highest level since June 2011.
Today, investors are set to closely track pending home sales data for additional insights on the housing market. Other data scheduled for release includes Chicago Fed national activity index and Dallas Fed manufacturing activity index. Market participants also await speeches by the Fed Chairman, Ben Bernanke and Philadelphia Fed President, Charles Plosser, for further clues on the monetary policy stance.
Euro – European Markets
Fears of contagion have resurfaced and dragged the Euro marginally lower against the US Dollar this morning after the Italian Prime Minister, Mario Monti, warned that Spain could reignite the European debt crisis as it struggles to control its finances. Joining the fray, EU’s commissioner for economic and monetary affairs, Olli Rehn, has demanded the Spanish government to push for more austerity measures.
Data just released indicates that the German Ifo business climate index climbed, while Italian consumer confidence strengthened for March.After last weeks disappointing German and European manufacturing data this provides welcome relief for Euro investors and looks set to limit the Euros losses against other majors today.
Investors are keenly focused on the EU finance ministers meeting later this week with reports indicating that Euro-zone policymakers may agree to combine the region’s two rescue funds. In today’s session, markets are expected to track the outcome of German and French bond auctions and the release of US macro indicators due later today.
Other Currencies – Highlights
The New Zealand Dollar has registered losses against the US Dollar after the nation’s exports came in lower than expected. Industrial disputes which delayed the shipment of goods are cited as a probable cause for this fall, However, overall trade balance data was positive, with New Zealand reporting a trade surplus for February after the deficit reported in January.
The Kiwi is under further pressure with subdued risk appetite prevailing in the market which has prompted traders to shun high yield assets and move towards safe haven currencies.