All Eyes on ECB Meeting

The Euro edged lower yesterday following a raft of downbeat economic data from the Eurozone. This has fanned market speculation that the ECB might hint at taking additional easing measures at its policy meeting today. The outcome of the Spanish and French bond auctions are likely to garner market attention. Following weak ADP jobs data from The U.S. yesterday, the non-manufacturing composite index due today is likely to be keenly eyed. Data just out indicates that the service sector in the UK expanded at a slower pace for April. This follows downbeat comments from Mervyn King and weak Nationwide housing prices released earlier today.

Pound Sterling – UK Markets

An unexpected rise in the UK construction PMI, coupled with dismal manufacturing and employment data across the Eurozone, aided the Pound to register gains against the Euro yesterday. Mortgage approvals and net consumer credit also surpassed market expectations. However, investor confidence which was gradually recovering after confirmation that the U.K. had once again entered recession took a hit as the BoE Governor Mervyn King, acknowledged that inflation in Britain is too high and economic recovery is slower than expected. This has weighed on Sterling against the majors this morning. Exacerbating the situation, the CBI warned that the economy is facing a long and difficult recovery and lowered its 2012 GDP growth forecast. Additionally, Nationwide earlier today revealed an unexpected monthly fall in UK home prices while the Lloyds business barometer survey pointed towards weaker business sentiment. Data just released revealed the pace of expansion in the UK services sector slowed for April. ECB President, Mario Draghi’s economic outlook and macro indicators across the Atlantic are likely to provide further direction to Sterling in today’s trading session.

US Dollar – US Markets

Yesterday, the US Dollar moved higher against the Euro, as bleak manufacturing and employment data across Europe stoked further doubts over the pace of recovery in the region. On the domestic front, the labour market struggled to gain traction as a survey by the ADP revealed a slower than expected pace of growth in the US private sector. The US Dollar is trading flat against the Euro and marginally higher against the Pound this morning ahead of the ECB’s monetary policy decision later in the day. Richmond Fed President, Jeffrey Lacker, reiterated his hawkish stance as he indicated that the central bank will probably need to raise interest rates in 2013 to keep inflation in the target range. Against the backdrop of weak ADP jobs report, initial jobless claims slated for release today and tomorrow’s non-farm payrolls are expected to attract increased market interest. Other releases scheduled today include ISM non-manufacturing composite index, non-farm productivity and Challenger job cuts.

Euro – European Markets

In the previous session, the Euro registered losses against the majors after data confirmed fragility in the manufacturing sector across the Eurozone. Moreover, dismal employment data in Germany, Italy and the Eurozone further aggravated concerns. Meanwhile, S&P upgraded Greece's credit rating to “CCC” from “Selective Default” thereby providing much needed relief to traders. This morning, the Euro is trading marginally firmer against the Pound, while it is holding steady against the US Dollar ahead of the ECB’s monetary policy meeting due later today. The central bank is widely expected to hint at stimulus measures to restore the economic recovery while retaining the benchmark interest rate at 1%. President, Mario Draghi’s post-meeting press conference will also be closely tracked especially after his cautious comments on the economic outlook last week. Moreover, the outcome of the Spanish and French bond auctions is also likely to influence the Euro’s movement against the majors today.

Other Currencies – Highlights

The Kiwi Dollar is trading sharply lower against the US Dollar this morning after a report released earlier today indicated that jobless rate in New Zealand unexpectedly climbed to 6.7% for the first quarter, the highest level since 2010. This comes on the back of weak trade balance data released earlier this week. The downbeat set of macro indicators has raised market speculation that the Reserve Bank of New Zealand may reassess its monetary policy stance in the future. Additionally, data indicating deterioration in the Chinese service sector also weighed on high yield currencies. Moreover, investors are exercising caution ahead of the ECB monetary policy decision and the Spanish and French bond auctions due later today. In a noteworthy development, the Reserve Bank Deputy Governor has announced plans to introduce new banking rules known as “macro-prudential policy” to help contain interest rate and currency pressures.