Markets Look Over the Atlantic

The ECB president, Mario Draghi, in the press conference yesterday affirmed its wait-and-watch approach and played down hopes of additional stimulus. Services PMI released across Europe today have not been encouraging. Market participants are gearing up for the crucial US non-farm payrolls report due later today, which is expected to reveal a faster pace of job additions for April. Additionally, concerns over leadership changes in Europe will keep investors focused on the French and Greek elections during the weekend. At home, following yesterday’s soft services PMI reading, downbeat comments from NIESR and key BoE personnel have further aggravated matters.

Pound Sterling – UK Markets

UK services PMI for April hitting a 4 month low did not adversely impact the Pound yesterday, as the service sector managed to stay in the expansionary zone. This morning, the Pound is trading marginally higher against the Euro and is holding almost steady against the US Dollar. Data just out indicates that Halifax house prices dropped more than expected for April. To add to the woes, NIESR has warned of an economic stagnation in the UK for 2012 before entering a period of growth in 2013. The agency reiterated its call for a short-term boost in government investment to bring the economy back on track. Fears over additional easing re-emerged after Charles Bean, Deputy Governor of the BoE, signaled a highly stimulatory monetary stance as the best possible way to rebalance Britain's economy. With no other major catalyst for the day, the Pound is likely to respond to risk sentiment prevailing ahead of the weekend elections in the Eurozone. Traders are also keeping a tab on the BoE’s monetary policy meeting due next week.

US Dollar – US Markets

Yesterday the US Dollar was range bound against the majors following mixed domestic economic data. The initial jobless claims posted the biggest weekly drop since May 2011, while the ISM non-manufacturing index for April fell to the lowest level in six months. Meanwhile, concerns over QE3 apparently petered off, after three eminent Fed officials issued a buoyant outlook over the US economy and rebuffed requirement of further stimulus. The US Dollar has strengthened marginally against the Euro this morning. After yesterday’s upbeat jobless claims report, all eyes are now set on today’s non-farm payrolls for a coherent picture of the overall employment status. Markets expect the report to indicate a faster pace of jobs addition for April, with the unemployment rate stabilising at 8.2%. Moreover, increased risk aversion ahead of the weekend elections in France and Greece has also prompted traders to reduce their bets on high yield currencies.

Euro – European Markets

The ECB President, Mario Draghi’s affirmation over a wait-and-watch approach aided the Euro to recover initial session losses against the majors yesterday. However, the gains were capped after the President signaled downside risks to growth and warned that the region still faces economic uncertainty, despite signs of stabilisation in the first quarter. In today’s trading session, the Euro has weakened against the majors following a raft of weak services PMI data across the Eurozone. France and Italy witnessed worse than expected contractions in the sector, while Germany registered a slower pace of expansion for April. Eurozone retail sales data, due later today, holds little market interest and investors will keenly focus on the outcome of elections in key European countries during the weekend. Market concerns have heightened that the expected leadership changes in these nations might derail the bloc’s austerity efforts.

Other Currencies – Highlights

The Australian Dollar has slipped against the US Dollar this morning amid market speculation that the Reserve Bank of Australia may lower its benchmark interest rate in the future, after it trimmed its growth and inflation forecasts earlier today. The GDP growth forecast was lowered to 3% in 2012 from a previously estimated 3.5% growth, while the consumer price inflation is projected to reach 2.5% in 2012 from an earlier estimate of 3%. The central bank had cut its key interest rate more than expected by 50 basis points earlier this week. Moreover, yesterday’s Australian services PMI for April, which dropped to the lowest level in three years, has raised further doubts over the health of the overall economy. Market participants keenly await a crucial set of domestic economic releases scheduled next week, featuring business confidence, trade balance, unemployment rate and retail sales for additional hints on the overall economic landscape.