Irish Referendum Gets Under Way

Overall risk appetite remained muted yesterday as rising Italian and Spanish bond yields impacted on deteriorating confidence indices in the Eurozone. The latest opinion polls in Greece have renewed worries over a potential Greek exit from the Eurozone. Additionally, the Irish referendum on EU fiscal treaty gets under way‎ today. Across the Atlantic, markets keenly await the revised first quarter GDP data later today. At home, consumer confidence and housing data released earlier today has surprised market participants on the upside. This comes on the back of better than expected mortgage approvals yesterday and is likely to dampen hopes of further QE.

Pound Sterling – UK Markets

The Pound slipped against the US Dollar yesterday, as concerns over the Spanish banking sector and rising bond yields in major peripheral Eurozone economies prompted investors to shun high yield assets. In a noteworthy comment, the BoE’s MPC member Paul Fisher, opined that the possibility of a Eurozone break-up cannot be ruled out. In today’s trading session, Sterling has managed to arrest its fall against the US Dollar after a survey by GfK revealed that consumer confidence in the UK improved for May. Additionally, better than expected Nationwide house price data released earlier today was in sync with robust Hometrack housing data out earlier this week. Upbeat mortgage approvals and consumer credit data releases yesterday added to the positive sentiment. With no crucial macro indicator on tap today, economic releases across the Atlantic and developments in Europe are set to provide direction to the Pound against the majors.

US Dollar – US Markets

Elevated risk sentiment boosted the US Dollar against the majors in yesterday’s trading session as dampened hopes of massive Chinese stimulus boosted demand for the US Dollar. Pending home sales data in the US released yesterday surprised traders on the downside and has raised concerns over the US housing market. In today’s trading session the US Dollar has witnessed a trend reversal against the Euro as focus shifts onto the heavy economic calendar in the US later today. Markets expect the first quarter US GDP to be revised lower, as inventories were weaker than assumed in the preliminary GDP estimate. The ADP employment report and jobless claims figures due later today is likely to set the stage for non-farm payrolls scheduled for release tomorrow. The Chicago PMI data will also be closely watched, especially ahead of tomorrow’s ISM manufacturing reading. Meanwhile, highlighting the divide over monetary policy stance at the Federal Reserve (Fed), the Boston Fed President backed QE3, whereas policymakers at New York and Dallas Fed rebuffed any such move.

Euro – European Markets

The Euro slipped against the US Dollar in yesterday’s trading session, as Spain’s 10 year bond yields moved closer to its previous highs, amid worries that Spain might seek outside assistance to fix its problems. Concerns in Italy have heightened after the government sold its 10 year debt at the highest yields since January 2012 and failed to meet its maximum target for the auction. Additionally, a sharp decline in Eurozone’s economic confidence and renewed worries over a potential “Grexit” has strengthened market belief that Europe might not be able to fix its problems anytime soon. However the Euro has bounced back against the US Dollar today and is trading higher. The German economic releases this morning have been upbeat and could help the Euro to recoup its earlier losses. Data indicated that German retail sales grew for a second consecutive month, while the unemployment rate dropped for May. Apart from developments in Spain, the Irish referendum on Europe's new fiscal treaty later today is expected to garner market attention wherein the latest polls suggest that the referendum might be accepted.

Other Currencies – Highlights

The Swiss Franc has climbed against the US Dollar this morning after data revealed that the Swiss economy unexpectedly expanded for the first quarter. The Swiss GDP grew 0.7% sequentially in the first quarter against market expectations of a flat reading. Additionally, prevalent worries surrounding the Eurozone prompted traders to seek shelter in safe haven currencies. Moreover, economic releases in Switzerland during the first half of this week pointed towards improvement in economic conditions, thereby lowering the possibility of a revision of the Swiss Franc’s cap against the Euro. Markets are expected to track retail sales and manufacturing PMI data due tomorrow to gauge prospects of the Swiss economy for the second quarter. Developments in the Eurozone and a series of significant US economic releases are set to determine the risk tone in today’s trading session.