UK Faces Challenging Times

A recovery for the UK economy remains elusive, as data showed a considerable slowdown in annual retail sales, though seasonal adjustments might add to the downward bias. In the midst of a discomforting macroeconomic environment in the UK, minutes of the BoE meeting released yesterday revealed that policy makers explored the idea of expanding the FLS programme. The Euro witnessed heavy selling yesterday after the Bundesbank Chief argued that there was room for the ECB to lower interest rates. Besides, rumours of a possible rating downgrade of Germany by a major credit rating agency rattled market sentiment. Meanwhile, the outcome of Spanish bond auction and the US labour market data are likely to be key drivers today.

Pound Sterling – UK Markets

Sterling slipped below the 1.53 mark against the US Dollar after a rise in unemployment coupled with a dovish outlook from the BoE minutes dented investor confidence. The employment report doled out a gloomy scenario for the labour market, as the unemployment rate inched higher amid signs of a slowdown in the broader economy. In the midst of gloomy economic prospects for the UK, policy makers at the BoE also discussed increasing the size of the FLS scheme. However, the Pound gave up its initial losses against the single currency in yesterday’s trading session after comments from an ECB member raised prospects of an interest rate cut in the Eurozone. Meanwhile, there seems to be no respite for the ailing UK economy, as data released just now has revealed that growth in annual retail sales slowed for March, in line with the earlier BRC report. This has added to the weakness in the Pound against the majors in today’s trading session. With the global economic recovery coming to a standstill, G-20 finance ministers meet in Washington today which will likely remain a key event on traders’ radar.

US Dollar – US Markets

Global economic worries and dovish comments from the ECB Governing Council member, Jens Weidmann, have triggered risk aversion among investors, aiding the US Dollar in today’s trading session. Meanwhile, the Fed, in its Beige book survey yesterday, revealed that that the US economy grew at a moderate pace from late February 2013 through early April 2013, underpinned by gains in manufacturing activity, a strong recovery in the housing sector and solid car sales. However, with inflation ticking lower for March, the St. Louis Fed President opined that a further decline in inflationary pressures could compel the Fed to increase its asset purchases. In this context, comments from a few Fed officials later today would be eyed for the Fed’s future policy moves. With last week’s jobless claims registering a decline, markets will closely watch today’s data to ascertain whether the previous figure was a one off event. Apart from the Philadelphia manufacturing data, traders are also expected to focus on G-20 finance ministers meeting for insights into the views of policy makers on monetary policies of the major central banks.

Euro – European Markets

Although the Euro nudged higher against the Pound after the UK reported downbeat employment data, the single currency lost ground later yesterday after Jens Weidmann stoked anticipation of an ECB interest rate cut amid a slowdown in the Eurozone economy. With a bleak global economic scenario denting market sentiment and driving financial markets lower, the G-20 finance ministers meeting commencing today in Washington will be keenly tracked. In the midst of Europe’s largest economy registering lack lustre growth, Egan-Jones Ratings has demoted Germany’s sovereign debt rating to “A” from “A+” and maintained its “Negative” outlook, citing the nation’s growing debt-to-GDP ratio and the risk of Germany being outvoted by other members of the ECB on providing more bailout funds to weaker EU members. However, Moody’s maintained its top "Aaa" rating on German sovereign debt. Additionally, today’s Presidential vote in Italy’s Parliament will also be in focus, given the recent political turmoil in the nation. With another day of a light European economic calendar, events unfolding across the Atlantic and Spanish bond auction would be in focus in today’s trading session.

Other Currencies – Highlights

The Japanese Yen is oscillating between gains and losses against the US Dollar this morning, as global growth concerns, G-20 meeting and Japan’s trade balance led to a shift in risk sentiment in today’s trading session. Data out earlier today revealed that Japan’s trade deficit narrowed more than expected for March, as a weaker currency increased demand for the nation’s exports. Meanwhile, indication of a future rate cut by an ECB official led the Japanese yen higher against the Euro in yesterday’s trading session amid a rise in demand for safe haven currencies. With competitive currency devaluation being one of the agenda in the G-20 finance ministers meeting commencing today, the Japanese Yen is likely to be affected by news flow emanating from the meeting. In a move to defend the Bank of Japan’s aggressive monetary policy actions, a central bank board member indicated that although aggressive policy stance could pose risks, the central bank has taken steps to end 15 years of deflation.