Fed Minutes in the Spotlight

Today’s FOMC minutes remain a key focus and are likely to indicate that policymakers continue to contemplate adjusting the pace of asset purchases. Market sentiment could be buoyed somewhat, as plans for a partial unwinding of stimulus are expected to be delayed following last week’s dismal employment report. At home, the NIESR GDP estimate released yesterday indicated that the British economy may have managed to register marginal growth in the first quarter of this year, thus easing fears of the economy slipping into a triple-dip recession. However, with Chinese trade balance unexpectedly swinging to a deficit and prevalent weakness in Spanish and Italian industrial output, global economic woes clearly prevail.

Pound Sterling – UK Markets

Buoyant industrial production data initiated some Pound buying yesterday, as the currency garnered traction and nudged above the 1.53 mark against the US Dollar. Industrial production rose more than anticipated for February, underpinned by a pickup in mining sector output and a recovery in oil and gas production in North Sea fields. Moreover, the NEISR estimates revealed that the UK economy could be able to eke out a 0.1% growth in the first quarter of 2013, on the back of seemingly strong manufacturing data for February and continued resilience shown by services sector. Although positive economic indicators managed to calm fears of a triple-dip recession in the UK, the official GDP figures scheduled for release during the latter half of this month will offer a clearer picture of economic performance. The economy is still not out of the woods as data indicated that trade deficit widened more than expected for February. With key economic releases out for the week, developments in overseas markets will likely have a bearing on Sterling against the majors.

US Dollar – US Markets

The US Dollar is trading in a tight range against the Euro and Sterling in today’s trading session, as traders adopted a cautious approach ahead of the minutes of the Fed’s latest monetary policy meeting due later today. Moreover, today’s Chinese data also surprised market participants, as trade balance unexpectedly posted a deficit for March. In light of Friday’s dismal non-farm payrolls data today’s minutes could prove decisive for risk appetite, as it should provide further hints to issues playing on the minds of policymakers at the last meeting. Although minutes could reveal that policymakers might have discussed the need for a partial withdrawal of the current stimulus, it remains to be seen how long the Fed waits until it takes some decisive steps in tapering the current bond buying programme. Meanwhile, yesterday’s NFIB index also came in lower, as the fiscal squeeze proved to be a drag on small business optimism. Apart from the FOMC minutes, markets are also expected to keep a tab on the US monthly budget statement due later today.

Euro – European Markets

Although the single currency declined against the Pound yesterday after the release of upbeat UK industrial production data, it managed to recoup most of its losses in the latter half of the trading session. The Euro is trading marginally higher and is flirting above the 1.31 mark against the US Dollar in today’s trading session, as market participants await further triggers for risk sentiment. Data out today revealed that French industrial output rebounded more than expected for February, thereby providing some much needed relief after a spate of gloomy economic releases from the Eurozone’s second largest economy. However, Spanish and Italian industrial production data continued to produce dismal results, thereby highlighting that peripheral economies are still struggling through troubled waters. Meanwhile, in the midst of persistent concerns in Italy’s political arena, markets will be keeping an eye on the nation’s bill auction due later today in order to gauge the possible response to tomorrow’s auction of longer dated bonds. With a relatively quiet economic calendar today, events unfolding on the other side of the Atlantic could likely prove crucial for the near term trend of the Euro.

Other Currencies – Highlights

The Kiwi Dollar has nudged higher against the greenback this morning amid higher risk appetite among traders, as equity markets in Asia and Europe rose. Data released earlier today revealed that China unexpectedly posted a trade deficit, but the outlook for the New Zealand economy remains fairly positive, as Chinese imports grew at a robust pace for the previous month. On the macro front, data out early morning indicated a sharp drop in overall credit card spending for March, snapping five months of positive movement amid a fall in spending on durable goods and clothing. Meanwhile, market participants are expected to keep a tab on manufacturing PMI due later today for further insights into the state of New Zealand’s manufacturing activity. Traders are also expected to remain watchful of the US FOMC minutes, given its influence on broader risk appetite.