A Bernanke Boost for Markets

Yesterday, there was a renewed bout of improved risk sentiment following robust European economic data and dovish comments by the US Federal Reserve (Fed) Chairman, which suggested the possibility of further Fed action to stimulate economic growth. This morning, the major currency pairs seem to have taken a breather and are trading in a tight range. Following weak German consumer confidence, traders now await US consumer confidence and S&P/Case-Shiller housing data due later today. At home, with only a CBI distributive trades survey on tap later today, general market tone is likely to govern movement in Sterling against the majors.

Pound Sterling – UK Markets

The Pound had been trading marginally higher against the Euro this morning, following downbeat consumer confidence data from Germany, but those gains have now been pared. In a noteworthy comment, BoE policymaker David Miles opined that the central bank’s decision on the timing of reversing its asset purchases will depend on the outlook for inflation. However, recent history indicates that inflation, which is currently hovering above the central bank’s target, has not deterred the BoE from providing further easing. Meanwhile, Sterling registered sharp gains against the US Dollar in yesterday’s trading as dovish comments from the US Fed Chairman, Ben Bernanke, rekindled hopes of a third round of quantitative easing for the US economy. In today’s trading session, traders are eyeing the outcome of the CBI distributive trades survey, which is expected to show further weakness for March.

US Dollar – US Markets

The US Dollar is trading in a tight range against both the Pound and the Euro this morning. Yesterday, the US Dollar had declined sharply against the Pound and the Euro after the US Fed Chairman, Ben Bernanke, stoked speculation of an additional round of stimulus for the economy, by indicating that continued accommodative monetary policy would be required for further improvement in the labour market. Moreover, weak pending home sales and regional manufacturing indices also strengthened calls for further easing measures. However, the Fed’s policymakers remain divided over providing additional easing measures, as is evident from comments by the Philadelphia Fed President, Charles Plosser, who rejected calls for an additional round of easing. Among key releases today, consumer confidence and the Richmond manufacturing index are expected to decline for March, while the S&P/Case-Shiller home price index is expected to continue its downward trend for January.

Euro – European Markets

The Euro is trading steady against the US Dollar this morning. Earlier today, GfK indicated that the nation’s consumer confidence deteriorated for April. This seems to have eroded optimism following yesterday’s release of positive Ifo business sentiment report. Meanwhile, data indicating a sharp improvement in French consumer confidence for March earlier today, failed to have an impact on the Euro. Yesterday, the Euro convincingly breached the 1.33 mark against the US Dollar after the Fed Chairman fuelled speculation of a third round of quantitative easing. In an attempt to allay investor concerns ECB President, Mario Draghi, affirmed that there are signs of stabilisation in both financial markets and overall economic activity, though at low levels. Another positive for the Euro was German Chancellor Angela Merkel’s indication that she was willing to accept an increase of the European firewall to €700 billion. In absence of significant economic indicators today, we could see the Euro take direction from the outcome of Italian and Spanish debt auction.

Other Currencies – Highlights

The Australian Dollar has gained marginally against the US Dollar. However, in the initial session, it had weakened against the greenback amid concerns over slowdown in Chinese economic growth, after data released earlier today indicated that earnings at industrial companies in China dropped for the first two months of 2012. Intensifying concerns further Andrew Liveris, the CEO of the Dow Chemical Company, warned that he sees signs of an imminent downturn in the Australian economy, citing declining jobs growth and overall competitiveness. Meanwhile Guy Debelle, the assistant Governor of the Reserve Bank of Australia, stated that the currency is at levels consistent with Australia's terms of trade and that the value of the Aussie Dollar is having a "material influence on the economic outlook at the moment".