Sterling Looks for Direction

The Pound has failed to gain much momentum against its peers today following mixed set of economic releases. Monthly figures for UK industrial production showed a rebound but sovereign debt trouble across Europe caused a deep dent to the UK trade deficit. With the possibility of the British economy registering a triple-dip recession, today’s NIESR GDP forecast holds significance. Against the backdrop of recent obstacles faced in implementing austerity measures, today’s visit of international lenders to Portugal and Greece holds prominence. The focus also shifts to tomorrow’s FOMC minutes, after the Fed Chief stated that US economic conditions are still far from desirable.

Pound Sterling – UK Markets

A rebound in monthly industrial production in the UK garnered muted response, as trade data revealed that deficit widened for February, thereby leading the Pound to trade close to yesterday’s lows against the Euro in today’s trading session. Data just now has revealed that monthly industrial and manufacturing production rose for February, thereby adding to hopes that the UK economy would manage to eke out growth in the first quarter of 2013 and avoid an unprecedented triple-dip recession. However, despite the recent weakness in Sterling, trade deficit widened, as prevalent worries in Eurozone economies dampened demand for exports. Among other economic releases, data out earlier today indicated that RICS house price balance improved for March. However, the BRC reported that like for like sales rose at a slower pace, as cold weather and rising inflationary concerns proved to be major drag on demand for items. With the broader economy painting a mixed picture, markets are expected to keep a tab on NIESR GDP estimate due later today for insights into the likely path of the UK GDP for the first quarter.

US Dollar – US Markets

In early trading session today, the greenback weakened against the Euro amid a rise in demand for high yield currencies, as the Fed Chief, Ben Bernanke indicated that the US economy is still not out of the woods. This has supported speculation that the central bank would continue with its monetary easing measures in the near future. Additionally, a more than anticipated easing in Chinese consumer price inflation for March boosted risk appetite, as it eased market concerns over further policy tightening by China. However, the greenback has recovered its losses and is trading almost flat against the Euro this morning. Meanwhile, the Cleveland Fed Chief stated that the US Fed could slow its bond-buying programme and still provide considerable stimulus. In this context, tomorrow’s FOMC minutes would be closely followed to gauge issues playing on minds of policy makers. With little in store in terms of macro news, markets are expected to pay attention to the NFIB small business optimism index due later today. With the broader economy feeling the heat of recent sequestration, today’s data would be keenly watched for further evidence of a slowdown in the US economy.

Euro – European Markets

Market hopes that major global central banks would continue with their monetary easing stance in the near future popped up “risk on” sentiment among traders, leading the Euro to move higher against the majors in the early trading session today. However, the Euro has dropped close to yesterday’s lows against the US Dollar later in the session amid prevalent worries surrounding European sovereign debt crisis. The region’s peripheral economies continue to pose fresh problems, as Fitch warned that it could demote Portugal’s credit rating deeper into junk territory, if it fails to implement austerity measures. However, there was some respite for Germany, as data released yesterday showed a rebound in the nation’s monthly industrial production, indicating that Europe's largest economy is slowly emerging from a rough patch. Further, today’s trade data revealed that trade surplus widened more than expected for February, as a fall in demand for exports was offset by a sharper drop in imported goods. On account of a light economic calendar, the visit of EU officials to Greece and Portugal amid the recent backlash against tough austerity measures would also garner market attention.

Other Currencies – Highlights

The Swiss Franc has declined against its major counterparts in today’s trading session, as data revealed that annual consumer prices in Switzerland declined for March. In the midst of a prevalent deflationary scenario, it remains to be seen what stance the Swiss National Bank would adopt in its monetary policy meeting scheduled later this month. The domestic data released earlier today was broadly a mixed bag, as data indicated that labour market situation remained fairly positive for March, while retail sales rose less than expected for February. With no major domestic data due for the week, the Swiss Franc is likely to rely on external cues for further direction. Additionally, traders are expected to keep a close watch on the US FOMC minutes due tomorrow for further insights into risk appetite among market participants.