BoE Monetary Stance Awaited

The spotlight in today’s trading session undoubtedly lies on the BoE’s interest rate decision. Most expect it to adopt a wait-and-watch approach. However, the dismal first quarter GDP data, coupled with subdued economic indicators, have fuelled market speculation for additional stimulus measures. Meanwhile, data just out revealed that annual industrial production continued to drop for March. In Europe, the Greek political dilemma continues, as the leader of Syriza party failed to form a government and it looks highly likely that there may be a re-election in mid-June. Across the Atlantic, jobless claims data due today is likely to generate some market interest.

Pound Sterling – UK Markets

Yesterday, the Pound gained against the Euro as fears of a Greek default escalated amid heightened political uncertainty in the nation. However, Sterling took a hit against the US Dollar, tracking weak retail sales data reported by the British Retail Consortium. However, the Pound pared its losses against the greenback in the later part of the session. Sterling is trading on a weak footing against both the Euro and the US Dollar in today’s trading session, ahead of the BoE’s monetary policy meeting later today, wherein the central bank is expected to maintain its benchmark interest rate and asset purchase target unchanged at current levels. However, dismal first quarter domestic GDP data, subdued macro indicators and persistent Eurozone worries would be things weighing on the minds of policy makers. Meanwhile, data just released indicated that annual British industrial production declined for March. Traders are also likely to keep an eye on the NIESR GDP estimate for April which is expected to provide some insight on the growth outlook for the British economy during the second quarter.

US Dollar – US Markets

The US Dollar registered gains against the Euro in yesterday’s trading session, as mounting concerns over the impact of Greek political stalemate on the nation’s existence in the bloc fuelled risk aversion among market participants. Additionally, fears over the Spanish banking system prompted traders to move towards the US Dollar. A buoyant assessment of the economic outlook by Fed officials further supported gains in the US Dollar. The Philadelphia Fed President affirmed that the US economy has proved to be remarkably resilient to shocks, while the Cleveland Fed President indicated that the economy is recovering at a “moderate” pace. However, this morning the US Dollar witnessed a trend reversal and has taken a hit against the Euro. On the economic front, trade balance data for March is slated for release today, but the focus rests on the weekly jobless claims report which is expected to be downbeat. Additionally, crucial news flow emanating from Greece and the interest rate decision in UK is also likely to set the risk tone for the day.

Euro – European Markets

The Euro slipped against its major counterparts in yesterday’s trading session, as any deal on a coalition government in Greece looked slim after two failed attempts. Tsipras, the Syriza party leader’s failure to form a government increased chances of a re-election in mid-June, prolonging the uncertainty. Additionally, Eurozone’s decision to hold back €1 billion of the nation’s latest bailout installment until June 2012 and disburse only €4.2 billion, further unnerved investors. Moreover, Spanish 10 year bond yield once again climbed above the 6% mark yesterday amid worries over the nation’s financial system. Spain decided to nationalise its fourth biggest lender, Bankia, highlighting the vulnerability of the Spanish banking sector. However, the Euro has rebounded from yesterday’s lows against Sterling this morning ahead of the BoE’s monetary policy meeting due today. The common currency seems to have shrugged off data indicating a decline in French and Italian industrial production for March. With little on offer in terms of macro indicators, traders keenly await the ECB’s monthly report for May to gauge the emerging economic landscape in the region.

Other Currencies – Highlights

The Japanese Yen has slid against the Euro and the US Dollar this morning after Bank of Japan board member, Sayuri Shirai, indicated that the central bank would keep a close eye on the currency movements. He further warned that loss of confidence in the Eurozone would add to risks for Japan's recovery. Moreover, a survey by the Japanese Eco Watchers’ revealed that the current economic conditions deteriorated for April. Additionally, a sharp contraction in the nation’s trade surplus for March raised fears about the economy, which is highly reliant on exports. With little on offer in terms of domestic economic releases during the week, the movement in the Yen against the majors is likely to be influenced by developments in the Eurozone.