Although, the US Fed meeting minutes revealed that some of its' members called for an early withdrawal of monetary stimulus, the response was largely muted due to the recent weakness seen in the labour market. With the fiscal situation in the US remaining a key focus, the White House proposed a budget that would trim their deficit by compelling wealthy Americans pay more tax. However, the plan stands little chance of being enacted into law, given the Republicans opposition to taxing wealthy Americans.
With a light domestic calendar, Italian long term bond auctions and US jobless claims data scheduled later today will be the highlight. Sterling is likely to track global cues for further direction in today’s trading session.
Pound Sterling – UK Markets
Despite a lack of decisive macro indicators from the UK, the Pound has managed to hold its ground and continues to trade above the 1.53 mark against the US Dollar in today’s trading session. The recent upbeat services PMI and industrial production data has offered a glimpse of hope that the UK economy would manage to escape a contraction in this quarter. The FOMC minutes released yesterday stimulated a muted response, perhaps on account of the weak labour market report for March.
Though some recent macro indicators have provided some respite, further evidence is needed to ascertain whether the worst for the UK economy has been felt. Manufacturing PMI, trade balance, the BRC retail sales as well as housing data have all dented market sentiment recently. Since economic releases continue to confound market participants on the state of the nation’s economy, labour market and consumer price inflation data due next week would be closely followed to unearth a clearer picture of the British economy in this quarter. With another light economic calendar today, news emanating from overseas markets will likely act as a catalyst for the near term dynamics of Sterling.
US Dollar – US Markets
The US Dollar is trading in a tight range against the majors this morning. Although the Fed minutes of the last monetary policy meeting indicated that few policy makers supported the idea of an early withdrawal of current stimulus, they failed to generate any major movement in currency markets, as market participants were seen sidetracking the relatively hawkish minutes largely on account of the recent dismal jobs report.
In a noteworthy development, Barack Obama, in an effort to trim the US deficit, unveiled a budget for 2014 that would require the wealthy to pay more tax. Moreover, just hours after the budget, he also set in motion the next $109 billion of reductions to military and domestic programmes for the year, starting on 1 October 2013. Meanwhile, data just out revealed that the US federal budget deficit narrowed for March, providing some respite for the US government.
In today’s trading session, traders are expected to keep a tab on the initial jobless claims report for further insights into the labour market outlook, given its influence on the Fed’s future policy moves.
Euro – European Markets
The single currency has failed to gain strength and is trading below the 1.31 mark against the US Dollar in today’s trading session. The US President’s spending cuts and lingering concerns surrounding the Eurozone economy dented demand for riskier currencies. Additionally the Euro has struggled after the FOMC minutes indicated that the Fed officials remained divided over the central bank’s future policy moves, with some members raising concerns over the cost and risks of unprecedented purchases.
Against the backdrop of the recent spate of dire economic releases from the Eurozone economy, the ECB monthly report released today has revealed that although the current economic outlook has painted a grim picture, the Eurozone economy would gradually gather momentum later in the year. Meanwhile, with yesterday’s Italian bills auction attracting decent demand despite the nation reeling under a political gridlock, it remains to be seen whether today’s long term bond auction also echoes similar results. Additionally, Eurozone industrial production data due tomorrow remains a key event on traders’ radar.
Other Currencies – Highlights
The Australian Dollar came under pressure against the US Dollar in early trading today, as a subdued unemployment report fuelled speculation that the RBA might resume interest rate cuts in its monetary policy meeting due this month. Employment data released earlier today revealed that the nation’s jobless rate unexpectedly climbed to 5.6% for March, the highest level in more than three years. Additionally, the softening of consumer price inflation expectations for April has provided further room to the central bank to loosen its monetary policy stance. However, the Aussie Dollar has managed to recoup most of its earlier session losses and is trading close to yesterday’s highs against the greenback.
With little in store in terms of domestic macro news today, market participants are expected to monitor external markets, especially US initial jobless claims, for further cues on risk sentiment. Going forward, the RBA’s minutes of the latest monetary meeting due next week will be the key for decoding the central bank’s future policy stance.
Sterling Rises on Hopes of EU Softening Tone on Backstop