Italy Comes to Rescue

Encouraging comments from the Italian Prime Minster claim that the nation can help persuade Germany to support Euro bonds. Positive German and French consumer confidence data released earlier today have also helped in soothing worries surrounding the Eurozone debt crisis. This comes as a respite for the Euro following yesterday’s dismal manufacturing data across Europe. In the UK, downward revision to the UK’s first quarter GDP data yesterday, has further heightened market speculation that the BoE may resort to some easing measures to spur the economy. With little in terms of European macro releases today, Reuters/Michigan consumer sentiment index in the US, due later today will be keenly eyed.

Pound Sterling – UK Markets

In the initial trading session yesterday, the Pound advanced against the Euro, as weak manufacturing data across Europe and China prompted traders to shun the Euro. However, Sterling ended relatively flat against the Euro on persistent market speculation of QE in the UK. Key events, during the course of the week, have increased the probability of the BoE adding further easing measures to its arsenal. Yesterday’s GDP data revealed a greater than expected contraction in the British economy for the first quarter on account of a sharp decline in the nation’s construction output. Besides, minutes of the previous monetary policy meeting indicated that policymakers remained open for additional QE. Moreover, a greater than expected drop in April’s consumer price inflation, has kept inflationary pressures at bay. This morning, the Pound has declined against the Euro, following encouraging comments by Italian Prime Minister, Mario Monti, on Greece and the issuance of Euro bonds. Additionally, data released earlier today, revealed that German and French consumer confidence indices, surpassed market expectations.

US Dollar – US Markets

The US Dollar has declined against the Euro this morning, following positive German consumer confidence data released earlier today. Yesterday, the US Dollar advanced against the Euro and Sterling in the initial trading session following the release of dismal PMI readings from major European economies and China. However, the greenback gave back its gains in the later part of the session. Meanwhile, weak US durable goods orders, released yesterday, strengthened market belief that major global economies remain susceptible to economic shocks, emanating from the Eurozone. Moreover, QE hopes dampened, as jobless claims remained close to the preceding week’s level. New York Fed President, William Dudley, reiterated that the US economy may not require any additional stimulus. Among the only major economic release due today, Reuters/Michigan consumer sentiment index is expected to confirm that consumer confidence in the US remain at the highest level in more than four years. Markets will also keep a close eye on a set of crucial US economic indicators due next week.

Euro – European Markets

The Euro has moved higher against the majors in today’s trading session following upbeat consumer confidence data from Germany and France. Meanwhile, in an attempt to regain market confidence, Italian Prime Minister, Mario Monti, indicated that Greece is likely to stay in the Eurozone and added that Germany could be persuaded to agree on issues related to Eurobonds. The Euro slipped close to the 1.25 mark against the US Dollar in yesterday’s session, on the back of lower risk appetite amongst traders. The recent PMI data from the Eurozone and China have strengthened fears of a slowdown in the global economy. Meanwhile, the ECB President, Mario Draghi, dismissed claims that the central bank’s recent liquidity injection posed any inflationary risk and called for greater economic integration within the Eurozone. With the economic calendar on the light side today, markets are preparing themselves for the Irish referendum due next week.

Other Currencies – Highlights

The Kiwi Dollar has advanced against the US Dollar this morning after Fitch and Moody's affirmed their foreign currency ratings of ‘AA’ and ‘Aaa’, respectively, on the country. These rating agencies have joined the S&P in affirming their current credit ratings, indicating their approval for the nation’s recent budget release. Moreover, gains in the Kiwi Dollar were supported, as concerns surrounding the Eurozone’s debt crisis faded after Italian Prime Minister, Mario Monti, indicated that Greece is likely to stay in the currency union. The majority of the region’s leaders also support the issuing of Euro bonds in order to combat the region’s debt crisis. Additionally, data released yesterday indicated that New Zealand’s trade surplus widened for April. However, exports to China remain a cause of concern, as data revealed a contraction in the Chinese manufacturing activity and a fall in business conditions for May.