Sterling Stumbles On

Economic woes for Britain continue as Fitch on Friday stripped the UK of its top notch credit rating. With the dire fiscal situation in the UK coming to the fore once again, further weakness in Sterling cannot be ruled out. Meanwhile, traders are likely to keep a close watch on this week’s GDP data from the UK, given its strong influence on Britain’s fiscal and monetary policies. Some positive developments in Italy emerged, as policymakers re-elected the current President. Meanwhile, the recent slowdown in the global economy prompted G-20 officials to reject the idea of setting hard targets for reducing national debt.

Pound Sterling – UK Markets

The Pound lost ground and nudged below the 1.53 mark against the greenback on Friday, as Fitch demoted its credit rating on the UK to ''AA+'' from ''AAA'' citing a weak economy hindering the nation’s ability to control debt. However, it has maintained a “Stable” outlook for the time being. In this context, public finances due tomorrow are expected to offer further insights into the nation’s fiscal situation. Meanwhile, a lack of decisive economic data has prompted traders to remain on the sidelines, leading Sterling to trade in a tight range against the US Dollar and the Euro in today’s session. Apart from public finances, CBI reported sales and BBA mortgage loans data due this week will also hold significance. However, the UK first quarter GDP data on Thursday is expected to remain a key event on traders’ radar and is likely to bring about a major shift in risk sentiment during the week. Meanwhile, comments from the BoE policymaker, Paul Tucker, later today are likely to garner market attention to decode the central bank’s future policy moves.

US Dollar – US Markets

The US Dollar gained traction against Sterling in Friday’s trading session after Fitch demoted the UK’s coveted credit rating. Meanwhile, the greenback is trading marginally higher against the Euro and the Pound in today’s session, as traders tread cautiously amid a lack of major economic news. In today’s trading session, existing home sales and the Chicago national activity index due later today are likely to have a bearing on risk appetite. With the recent housing data indicating that recovery on the housing front is faltering, existing home sales data will be closely followed for insights into the housing sector. The Chicago Fed’s national activity data, ahead of other major regional manufacturing data later in the week, is likely to shed light over the recovery in manufacturing activity in regional economies. Apart from regional updates a slew of economic releases, including the US first quarter GDP and durable goods data due this week, will be closely gauged to paint a clearer picture surrounding growth prospects in the economy.

Euro – European Markets

The single currency gained ground against the Pound on Friday after the ECB Governing Council member, Jens Weidmann, softened his stance and indicated that the central bank would go ahead with rate cuts only if economic prospects take a turn for the worse. Additionally, concern about a political crisis in Italy eased after Giorgio Napolitano was elected as the nation’s President for a second term. Meanwhile, the Euro is trading in a tight range against the US Dollar and the Pound in today’s trading session amid a lack of economic data. Going forward, Eurozone consumer confidence data due later today is likely to provide assistance in evaluating the region’s macro profile. While the broader consensus points to a marginal deterioration in sentiment, a larger than expected dip, considering the gloomy set of economic releases in the recent past, is likely to have a bearing on the single currency in today’s trading session. Additionally, manufacturing and services PMI across Europe due tomorrow should be closely watched for further insights into the ailing economy. The German Ifo confidence indices data, due later this week, remain another key event that has the potential to trigger a change in risk appetite.

Other Currencies – Highlights

The Japanese Yen has continued its slide against the majors in today’s trading session, as the Bank of Japan’s unprecedented monetary stimulus programme escaped criticism from G-20 nations. While reiterating their stance to avoid competitive devaluation, the G-20 stated that Japan's recent policy actions were aimed at ending deflation and supporting domestic demand. Additionally, the Japanese Finance Minister, Taro Aso, indicated that the nation would likely recover to self sustaining growth in a few years and warned that the target of achieving 2% inflation in two years is too ambitious. In this context, consumer price inflation data and the central bank’s monetary policy meeting in the latter part of the week will be keenly gauged to decipher effects of the recent policy change and the central bank’s future policy moves. Moreover, manufacturing PMI and small business confidence data due later this week is likely to shed light on the nation’s economic recovery. In the absence of major domestic cues today, market participants are likely to ponder on external events for further direction to currency markets.