UK Economy Takes another Hit

The resilience seen in the labour market over the last few months appears to be losing steam. Data just out showed that the unemployment rate climbed for February, with the only solace being that the number of claimants for jobless benefits nudged lower for March. Despite growth concerns continuing to rattle market sentiment, today’s BoE minutes indicated that MPC members continued to adopt a wait and watch approach in the midst of prevalent inflationary pressures. The recent strength in the greenback disappeared in yesterday’s session, as easing inflationary pressures and weakening industrial production supported calls for continuing QE. Meanwhile, the IMF’s bleak global economic forecast and a sharp drop in European sentiment indices yesterday, highlighted the precarious global situation.

Pound Sterling – UK Markets

In the midst of concern over growth remaining sluggish in Britain, today’s labour market data has elevated fears as data confirmed that job creation in the UK is steadily losing momentum. Additionally, the IMF slashed its 2013 UK economic growth forecast to 0.7% from an earlier projection of a 1% growth, thereby making it the sharpest downgrade of any advanced economy over the last two years. Moreover, the agency added that the current austerity measures in Britain need to be eased in order to assist growth. This has kept Sterling under pressure against the majors in today’s trading session after having a decent run against the US Dollar yesterday. However, with consumer inflation perched stubbornly at an eleven month high, the minutes of the BoE’s latest monetary policy meeting revealed no change in the voting pattern, as elevated inflationary pressures played on most policymakers’ minds. With no further domestic cues scheduled for today, traders are likely to pay passing attention to the incoming BoE Governor, Mark Carney’s press conference later today to seek insights to his views about the global economic outlook.

US Dollar – US Markets

The US Dollar reversed its recent uptrend yesterday, as disappointing economic indicators from the US continued to fuel speculation that the Fed’s ultra loose monetary policy measures would stay intact for a longer than expected period. Despite the accommodative stance adopted by the US central bank, data revealed that inflationary pressures in the US remained benign. Moreover, factory output in the US unexpectedly slid for March, as companies adopted measures to limit inventory growth. In the midst of evident worries on the growth front, influential policymakers in the Fed appeared to be leaning in favour of maintaining the central bank’s accommodative stance, with the Fed’s Vice-Chairman and the New York Fed Chief maintaining their dovish stance. With uncertainty on the fiscal front stoking growth worries in recent months, the IMF also echoed similar concerns by lowering the US economic growth forecast for the current year. However, data from the housing front offered a positive picture, as US housing starts surpassed the one million mark for March. The Fed’s Beige Book survey and the build up to the G-20 meeting are likely to remain the major themes in today’s trading session.

Euro – European Markets

The Euro has limited losses against the greenback in today’s trading session, as recent economic releases from the US strengthened belief that the Fed would continue to maintain the current monetary policy stance. Anaemic recovery in the US labour market, coupled with subdued inflation, has continued to propel belief that the Fed would stick to its accommodative monetary stance. However, with European economies grappling with debt woes, the IMF maintained that the Eurozone would continue to remain in recession in 2013. Moreover, the IMF expects France to slip into recession this year, thereby raising concerns about the precarious state of affairs in the French economy. Additionally, optimism surrounding the European economy during the initial phase of the first quarter appears to be steadily fading, as data showed a sharp drop in German and Eurozone economic sentiment index for the current month. With no major economic releases in store from the Eurozone in today’s session, traders are likely to keep an eye on developments ahead of the G-20 meeting.

Other Currencies – Highlights

The Kiwi Dollar has declined against its major peers in today’s trading session after data revealed that annual consumer price inflation in New Zealand remained below the central bank’s target rate for the third consecutive quarter, thereby offering scope to the Reserve Bank of New Zealand to keep interest rates lower for a longer period. Additionally, traders remained cautious, as the IMF slashed its global economic growth forecast for the current year. Meanwhile, traders are likely to keep an eye on consumer confidence data from New Zealand, scheduled for release tomorrow, in order to gauge consumer morale in the midst of subdued inflationary pressures. Apart from major global cues during the week, traders are likely to focus on the Reserve Bank of New Zealand’s monetary policy meeting, due next week, to gauge the central bank’s stance.