G-Force

In the midst of a lack of economic cues today, market attention has shifted to the second day of the highly anticipated G-20 meeting. Lawmakers are likely to affirm a commitment to avoid currency devaluation to gain trade advantage, but might withhold from targeting Japan for its current monetary policy stance. There appears no respite to the chaos in Italy, as the divided Parliament failed to elect a new President yesterday, thereby heading into a third vote later today. Meanwhile, yesterday’s comments from the Fed’s policymakers suggest a more dovish stance following easing inflationary pressures and heightened fears surrounding the labour market. For the week ahead, UK GDP data remains the near term trend decider for Sterling.

Pound Sterling – UK Markets

The Pound managed to move closer to the 1.53 mark against the US Dollar in yesterday’s trading session, as subdued US initial jobless claims data added to hopes that the Fed would not rush to dismantle its asset buying programme. Sterling continues to remain on a firm footing against both the Euro and the US Dollar and has breached the 1.53 level versus the greenback this morning. Though yesterday’s UK retail sales data was poor, it did not have much impact on the Pound. Data revealed that annual retail sales growth slowed for March, as cold weather and high inflationary concerns dented consumer demand. Meanwhile MPC member, Martin Weale, argued that the BoE could restart its asset purchases, if inflationary pressures in the system begin to ease. With a relatively light domestic economic calendar today, overseas events are likely to act as a catalyst for the near term dynamics of currency markets. Going forward, traders are expected to keep a close eye on UK first quarter GDP data. Although the broader macro profile continues to portray a gloomy picture, it remains to be seen whether the resilient services sector helps the economy to escape a triple dip recession.

US Dollar – US Markets

The US Dollar is trading marginally lower against the single currency in today’s trading session. With recent data indicating an easing trend in consumer price inflation, more Fed officials have pointed out that cooling price pressures could prompt the central bank to administer additional easing measures. The greenback could come under further pressure against the majors, with a growing number of Fed policymakers adopting a dovish stance. On the macro front, data released yesterday revealed that the number of Americans seeking jobless aid climbed in the previous week, thereby casting doubts over the strength of recovery in the labour market. Moreover, manufacturing activity in the Philadelphia region unexpectedly slowed for April. Yesterday’s disappointing economic releases have further added to evidence that all is not well in the world’s largest economy, as the effects of a payroll tax increase and concern over federal budget cuts continued to weigh on economic outlook. With little in store in terms of macro releases in the US, developments from the G-20 meeting and news flow from the Italian political arena are likely to prove crucial for the greenback in today’s trading session.

Euro – European Markets

The common currency was pretty volatile against the greenback yesterday, as strong Spanish bond auctions, political impasse in Italy and downbeat US macro data continued to confound traders. However, the Euro has nudged lower against the Pound in today’s trading session. Spain witnessed robust demand at a long term bond auction held yesterday, as perceived credibility of the ECB backstop and expectations of continuing monetary easing by major global central banks boosted risk sentiment amongst investors. Additionally, the German Parliament approved the Cyprus bailout plan, calming some market nerves. However, Italy seems to have become embroiled in a political upheaval, as two rounds of voting to elect a President proved unsuccessful. The third round of voting due later today is likely to garner most market attention and is likely to have a bearing on risk sentiment. Additionally, the ECB’s announcement of a 3-year LTRO repayment will also provide a further hint to recovery in peripheral economies. Next week, Eurozone consumer confidence and a flurry of manufacturing and services PMI releases are expected to have profound influence on the Euro against the majors.

Other Currencies – Highlights

Earlier in the week, the Canadian Dollar had come under pressure against the US Dollar after the Bank of Canada Governor, Mark Carney, while keeping the key interest rate unchanged, lowered his economic growth forecast on Canada to 1.5% this year, well down from a 2% expansion predicted a few months ago. However, the Canadian Dollar has pared some losses and is trading higher against its US counterpart this morning. In today’s trading session, Canadian consumer price inflation data remains critical to movement in the Canadian Dollar and is likely to shed light on the monetary policy stance that the central bank plans to adopt in future. Apart from inflation data, traders are expected to closely monitor the outcome of the G-20 finance ministers meeting and developments in overseas markets. Meanwhile, retail sales data due next week is also expected to garner market attention for further updates on the nation’s economic recovery.