Global Growth Prospects Turn Sour

After the release of surprisingly weak economic data from the US on Friday, there appears no respite in sight, with traders taken aback by dismal GDP data from China this morning. The upside in high yield currencies looks limited in today’s trading session, as weak economic data from China drew dark clouds over growth prospects for the global economy. Traders are bracing themselves for a busy week ahead in the UK, as a raft of economic releases will remain the key driver for Sterling and will set the stage for next week’s first quarter GDP data. Meanwhile, in the midst of a growing influence of monetary policies on currency markets, this week’s G20 leaders meeting promises to gain market attention.

Pound Sterling – UK Markets

The Pound has weakened against the US Dollar in today’s trading session following a rise in demand for safe haven currencies in the aftermath of downbeat Chinese economic growth data. Meanwhile, Rightmove has reported that average asking prices for a house in the UK continued to ascend for the fourth consecutive month in April, as a combination of a pickup in the housing market and a shortage of properties for sale supported house prices. With a light economic calendar today, a barrage of key economic releases during the week is likely to weigh on market sentiment. Traders will closely eye consumer price inflation data due tomorrow to gauge inflationary pressures in the UK economy. Apart from the inflation report, employment and retail sales data ahead of the official GDP numbers due next week will be keenly watched to ascertain growth prospects of the UK economy for the first quarter of 2013. Additionally, the BoE minutes due on Wednesday will likely attract attention as traders attempt to discern whether the BoE Chief managed to convince any other member in the MPC to restart the asset purchase programme.

US Dollar – US Markets

Risk off sentiment prevailed in the currency markets after the Chinese economy grew at a slower pace in the first quarter of 2013, leading the greenback to nudge higher against the Pound and the Euro in today’s trading session. This has heightened fears that recovery in the world’s second largest economy is losing momentum. Meanwhile, the US Dollar recovered its earlier losses against the single currency in Friday’s trading session after data revealed that US retail sales unexpectedly dropped for March, raising fears that the US economy would likely end the first quarter on a softer footing. With the economy treading a rough path recently, Michigan/Reuters reported that confidence among consumers also declined sharply for April. In today’s trading session, the NAHB housing market index would remain a key event on traders’ radar for insights into the state of recovery in the nation’s housing market. Going forward, a flurry of economic releases due this week, including consumer price inflation, housing starts, manufacturing production and the Fed’s Beige Book survey are likely to offer new data to evaluate the nation’s precarious macro profile.

Euro – European Markets

Market participants flocked to safe haven currencies this morning after the world’s two largest economies showed signs of a slowdown. Market sentiment was tempered after China’s economic growth eased back for the first quarter of 2013. Moreover, the single currency had come under pressure in Friday’s trading session after the US posted downbeat retail sales and consumer confidence data. Adding to these woes, reports of a new anti-euro political party gaining strength in Germany further dented market sentiment. On the macro front, data released on Friday indicated that Eurozone monthly industrial production edged up more than estimated for February, underpinned by strong growth in Germany and France. Markets are expected to keep a tab on trade balance data scheduled for release later today for further insights into the region’s recovery. Additionally, the ZEW sentiment indices due for release tomorrow are also expected to be in the limelight. Apart from trade balance and ZEW sentiment indices, there are no major macro releases scheduled this week. We believe that news flow emanating from overseas markets is likely to determine risk appetite among investors during this week.

Other Currencies – Highlights

The Japanese Yen has strengthened against the majors in today’s trading session after a US Treasury report warned Japan to refrain from engaging in competitive currency devaluation. Against this backdrop, the G20 meeting scheduled later this week is expected to garner market attention as currency devaluation is likely to find its way into the discussion. Moreover, downbeat Chinese economic growth data helped the Japanese Yen to nudge higher against high yield currencies, as investors preferred to seek shelter in safe haven assets. Meanwhile, the Governor of the BoJ, Haruhiko Kuroda, stated that nation’s economy has begun showing signs of recovery amid an improvement in demand from domestic and overseas economies. The optimism was echoed in the final industrial production data released earlier today which was revised upwards for February. Trade balance, consumer confidence and leading index data feature among the other important releases this week and would be tracked for further hints on the overall economic landscape.