The release of yesterdays fourth quarter GDP revision revealed a surprise fall, leading traders to back out of Sterling amid fears that additional quantitative easing would be back on the agenda when the PPC meet in May. Adding to this sentiment, data released today revealed that the UK housing market remains fragile. More positive news eminated from the Eurozone with the suggestion that European governments are preparing to increase the size of rescue funds at their meeting scheduled tomorrow.
Across the Atlantic, market participants are keeping an eye on the final revision to the fourth quarter US GDP data. A surprise fall on this front may serve to reiterate Bernankes warning on Monday that the strength of the US economic recovery should not be over estimated.
Pound Sterling – UK Markets
Sterling was under pressure yesterday against the US Dollar after data revealed that the UK’s fourth quarter GDP was unexpectedly revised lower, casting doubts over prospects of returning to growth in the first quarter. This has also strengthened market speculation over further easing by the BoE. Additionally, a wider than expected current account deficit intensified market concerns.
This morning the Pound recovered from its previous session losses and has consolidated marginal gains against the majors this morning. All this despite Nationwide's March report showing the sharpest monthly fall in more than two years for British house prices.
A raft of data just released indicates that mortgage approvals in the UK dropped for February while net consumer credit climbed for the same period.
In today’s trading session, investors await the central bank’s quarterly credit conditions report, slated for release later today.
US Dollar – US Markets
Mounting optimism over an imminent increase in Euro Zone firepower has prompted investors to shun the US Dollar and move towards high yield currencies.
Yesterday, weaker-than-expected US durable goods orders for February fueled concerns over lackluster economic growth in the first quarter and has rekindled hopes of another round of easing.
Meanwhile, US Treasury Secretary, Timothy Geithner, expressed cautious optimism by suggesting that the economy is regaining strength but high unemployment, a weak housing market and the overall effects of the financial crisis pose an obstacle to growth.
In today’s trading session, the currency’s movement is likely to be guided by the final revision of the fourth quarter GDP and personal consumption data. Additionally, initial jobless claims will also be keenly eyed by market participants looking for further signs of growth.
Euro – European Markets
The Euro has advanced marginally against the US Dollar after a draft statement indicated that the EU finance ministers are preparing for a one-year increase in the ceiling on rescue aid to €940 billion as a measure to keep the debt crisis at bay. Additionally, better than expected German unemployment data supported gains in the Euro.
Concerns surrounding Spain have intensified. With the Spanish government about to release its 2012 budget, the nation today faces a general strike against tough austerity measures. Elsewhere in the periphery, Moody's has downgraded credit ratings of five Portuguese banks due to concerns over deterioration in asset quality. These events have made market participants a little skeptical over the possible upside in the Euro.
Today, the currency is set to closely track the outcome of Italian long term bond auction after the yield on Italian six month bills dropped yesterday to its lowest since September 2010. The Eurozone business climate indicator and consumer confidence index are also on the economic docket today.
Other Currencies – Highlights
The Kiwi Dollar has climbed marginally against the US Dollar after a survey by the National Bank of New Zealand revealed that a net 33.8% of companies expect the economy to improve over the next 12 months, up from 28% recorded in February. The improvement in confidence is believed to have been led by a sharp rise in confidence in the construction sector followed by services and manufacturing.
However, gains in the Kiwi Dollar remained capped following a weak start to the European equity markets. Additionally, data due later today is expected to indicate that building permits in New Zealand remained flat for February, compared to a sharp increase registered in the previous month.
In today’s trading session, we expect the currency to respond to the overall risk sentiment prevailing in the market.