Sterling Hits Buffers Again

Data just out indicated that manufacturing activity in the UK deteriorated for April, raising doubts over the pace of the economic recovery in the second quarter. This comes on the back of surprisingly downbeat UK GDP data released last week and has provided additional impetus to calls of further easing in Britain. In absence of key catalysts in Europe, market focus in today’s trading session is likely to be on the US, wherein manufacturing activity is expected to indicate a slower pace of expansion for April. The manufacturing sector in the US seems to be losing steam as highlighted by yesterday’s sharp decline in regional business activity indices.

Pound Sterling – UK Markets

Sterling has retreated against both the Euro and the US Dollar this morning, after data just released revealed that the nation’s manufacturing PMI declined more than expected for April. Yesterday, Sterling declined from its eight month high against the US Dollar as persistent worries over Spain’s debt crisis prompted traders to move towards safe haven assets. However, losses were limited after the Swiss National Bank indicated that it has almost doubled its holding of Pounds in the first quarter. Additionally, house prices in the UK, as measured by Hometrack, rose for the second consecutive month for April. The Pound had risen against the US Dollar in the previous 10 sessions, marking the longest winning streak since June 1992. Meanwhile, the British job market continued to hamper market confidence as the International Labour Organisation warned that elevated levels of unemployment in the UK could trigger widespread social unrest.

US Dollar – US Markets

The US Dollar had advanced against the Euro in yesterday’s trading session, as Spain’s fiscal woes came to the fore after data revealed that the Spanish economy slipped into a recession in the first quarter. QE speculation in the US waned after San Francisco Fed President, John Williams and Dallas Fed President, Richard Fisher, expressed their objection for a new round of easing for the US economy, citing an improvement in the US consumption and available income for April, as well as positive signs in the property market. In today’s trading session, the greenback is trading lower against the Euro on the back of an improvement in the Chinese manufacturing activity for April. Markets are expected to closely monitor the ISM manufacturing index for April due later today, as yesterday’s regional manufacturing indices offered a grim picture of the state of the manufacturing sector in the major US regions. Among other releases slated today, construction spending is expected to recover for March.

Euro – European Markets

Yesterday, the Euro was under pressure against the US Dollar following dismal Spanish GDP data and downbeat German retail sales for March. Additionally, fears of a global economic slowdown had a firm grip on market sentiment after data from the other side of the Atlantic revealed weakness in the major regional manufacturing activity indices for April. The Euro has recouped some of its losses against the US Dollar and is trading higher today, as an improvement in the official Chinese manufacturing activity eased concerns surrounding global economic growth. In a noteworthy development Luxembourg Prime Minister, Jean-Claude Juncker, indicated that he is stepping down as the head of the group of Euro-area finance ministers, owing to the constant Franco-German interference in managing Europe’s fiscal problems. In the wake of a light European economic calendar, the Euro is expected to take direction from the macro indicators due to be released in the US later today.

Other Currencies – Highlights

The Aussie Dollar has declined sharply against its major peers this morning after the Reserve Bank of Australia (RBA) lowered its benchmark interest rate by more than forecast to 3.75% from 4.25%, marking the steepest cut in three years. Market participants were expecting the central bank to lower its interest rate to 4%. The RBA attributed this steep rate cut to weaker than expected economic conditions in Australia and has raised concerns over the present European situation. Moreover, demand for the Australian Dollar dampened after data revealed that house prices in eight major Australian cities dropped 1.1% in the first quarter of 2012, following a revised 0.7% drop recorded in the previous quarter. To add to the gloom, the performance of the manufacturing index in Australia, as reported by the Australian Industry Group, fell sharply last month.