Bonjour M. Hollande Au Revoir Austerity

The outcome of the recent elections in France and Greece has cast doubts over Europe’s commitment to the austerity measures implemented to reduce debt levels in the region. Formation of a socialist government in France and a hung Parliament in Greece pushed the Euro lower against the majors yesterday. Economic uncertainty is expected to dominate the BoE Monetary Policy Committee later this week and markets keenly await any indication that the MPC would implement further quantitative easing. The CEBR yesterday revealed that unemployment in the UK would climb until 2016 amid increased fiscal cuts. Across the Atlantic, weaker non-farm payrolls data continues to fuel the QE chatter.

Pound Sterling – UK Markets

Sterling traded in a tight range against the Euro, as concerns surrounding the British economy offset worries emanating from the Euro zone. A survey by the Royal Institute of Chartered Surveyors indicated that UK house prices unexpectedly declined for April. Meanwhile, the outlook for the job market remained bleak, with the Lloyds employment confidence index declining for April. Markets are expected to closely monitor BRC’s retail sales data due later today for further cues on the nation’s retail sector. The weakness in the economic environment has led to a fall in the nation’s shop price inflation for April. With no crucial releases slated for the next two days, markets keenly await the BoE’s monetary policy decision later this week. While most expect the central bank to keep its monetary policy unchanged, fears of a recession and weak PMI data have fueled prospects for additional stimulus. In today’s session the currency is expected to track the BRC like-for-like sales data for further cues, while keeping a close eye on the European debt auctions.

US Dollar – US Markets

Rising political tensions in the Eurozone has boosted the US Dollar’s appeal as a safe asset against the majors this morning. The labour market continues to be a point of worry in the US, following Friday’s dismal non-farm payrolls data. Stoking concerns further, Richmond Fed President Jeffrey Lacker opined that much of the US unemployment is due to structural weaknesses which cannot be fixed by additional easing. Today, the NFIB Small Business Optimism for April and the IBD/TIPP Economic Optimism Index for May could garner some interest. However, the major trend is set to be dominated by political developments and the bond auctions in the Eurozone.

Euro – European Markets

The Euro bounced back from yesterday’s lows amid hopes that the Spanish government would devise a plan to aid the nation’s ailing banks. However, it continues to trade lower against the greenback in today’s session amid uncertainty over the region’s political environment. The recent election results in France and Greece have revealed a public backlash against austerity measures. Socialist leader, Francois Hollande’s victory in France has cast doubts on the nation’s ability to push through austerity plans, while Greece’s political leaders are meeting for a second day in a bid to form a new government. The economic outlook further deteriorated as the Eurozone’s investor sentiment for May slipped to the lowest level since September 2009. In today’s releases, German industrial production is expected to show a recovery for March. A series of pivotal debt auctions are on tap and these would likely determine risk appetite.

Other Currencies – Highlights

The Swiss Franc has slipped against the US Dollar and Japanese Yen, on concerns of persistent deflationary pressures in the Swiss economy. A higher than expected drop in the nation’s CPI has stoked fears that the prevailing deflationary pressures could prompt the SNB to revise the Franc’s cap against the Euro. Meanwhile, the seasonally adjusted unemployment rate climbed, while the nation’s foreign currency reserve declined for April. However, the Swiss Franc traded flat against the Euro, as the recent election results from the Eurozone offset worries surrounding the Swiss economy. With no major economic releases due for the week in Switzerland, traders are expected to closely monitor the events in the European political arena for further direction.