How Low Can You Go

The Euro, which was under pressure throughout yesterday’s trading session, has recovered some of its losses today following better than expected first quarter German GDP data. This has turned focus towards Eurozone economic growth data due later today. Meanwhile, uncertainty in the zone mounts as Moody’s downgrade 26 Italian banks and speculation is heightened that Greece could exit from the Eurozone, unless the nation positively counters the present political impasse. Eurozone finance ministers have, however, rejected talks of a Greece exit. With a light economic calendar in the UK today, some major economic data across the Atlantic, including inflation and retail sales, is likely to keep traders on their toes.

Pound Sterling – UK Markets

Ambiguity surrounding the Greek political scenario led Sterling to trade on a firmer footing against the Euro in yesterday’s trading session. However, today’s session has witnessed a slight trend reversal, with the Pound trading lower against the Euro after German first quarter GDP data surpassed market expectations. Meanwhile, data just out showed that British trade deficit narrowed for March. The BoE’s quarterly inflation report takes centre stage tomorrow and will be closely tracked for the latest UK growth and inflation forecasts. Additionally the BoE Governor, Mervyn King’s press conference tomorrow will likely shed some light on the MPC’s recent monetary policy decision. Moreover, jobs data will also garner increased market interest, especially after the Centre for Economic and Business Research last week hinted at a deteriorating employment scenario in the UK. With no other crucial domestic triggers on tap, news flow emanating from Europe is likely to provide direction to Sterling against the majors in today’s trading session.

US Dollar – US Markets

The US Dollar continued to rise against the Euro in yesterday’s trading session amid bleak market sentiment surrounding the Eurozone. Consecutive failures in talks to form a new government in Greece, and rising bond yields at the Spanish and Italian bond auctions, aided the US Dollar to consolidate gains against the Euro. In today’s trading session, better than expected GDP data from Germany has aided the Euro against the US Dollar. Additionally, dismissal of Greek exit propaganda by Eurozone finance ministers also allayed market concerns. In today’s trading session, markets await a raft of economic data to gauge the prospects of further stimulus for the US economy. Data slated for release later today is expected to reveal that consumer price inflation in the US eased for April, strengthening calls for a new round of easing for the economy. Other major macro releases include retail sales, Empire manufacturing index and NAHB housing market index.

Euro – European Markets

The political stalemate in Greece, coupled with downbeat Eurozone industrial output and rising Spanish and Italian bond yields, pressurised the Euro against the majors in the previous trading session. However, Eurozone finance ministers rebuffed talks of a Greek exit and aided the Euro to pare some of its losses in today’s trading session. Moreover, data indicating a more than expected expansion in the German economy for the first quarter also boosted the Euro. Meanwhile, Moody’s ratings downgrade on 26 Italian banks and data indicating a stalling French economy had little impact on the currency. Markets are keeping a close eye on the Eurozone GDP data due later today, which is expected to reveal a contraction in the first quarter. Additionally, sentiment indices in Germany and the Eurozone are also likely to generate some market interest. Moreover, the outcome of the Eurozone finance ministers meeting today is also likely to prove decisive for the movement in the Euro.

Other Currencies – Highlights

The Aussie Dollar has moved higher against the US Dollar, as risk appetite among traders improved after data revealed a better than expected German GDP growth for the first quarter. The upbeat GDP reading and a firm start to the European equity session have spurred demand for the high yield currencies. Meanwhile, the minutes of the Reserve Bank of Australia’s last rate setting meeting indicated that risks emanating from Europe continue to cloud the global outlook. The minutes further highlighted that the interest rate cut was undertaken at the last meeting to counter rising mortgage costs and shore up consumer confidence. However, recent economic data indicating a decline in new vehicle sales in Australia and an unexpected fall in foreign direct investment in China did not have a meaningful impact on the Aussie Dollar.