Chinese Dragon Puffed Out

High yield currencies began today’s session on a weaker footing, as soft manufacturing PMI data from China elevated fears that the nation’s recovery is losing momentum. Further denting market sentiment, PMI releases from Germany and the Eurozone surprised on the downside. With the global economic recovery remaining sluggish, a raft of key economic releases during the course of the week is likely to grab traders’ attention as they attempt divine the trend going forward. Back in the UK, concerns on the fiscal front continue to simmer, as data revealed a rise in public sector borrowing for March. Sales data release by the CBI later today will be closely tracked for insights into the manufacturing sector.

Pound Sterling – UK Markets

The Pound has moved higher against the single currency this morning as worries surrounding the Euro area took a turn for the worse following the region’s dismal PMI data. Conversely, weak manufacturing data from China and the Eurozone stoked demand for safe haven assets, leading Sterling to nudge lower against the US Dollar in early trading today. On the domestic front, data out just now has revealed that public sector net borrowing edged higher for March, highlighting woes on the fiscal front. Meanwhile, with the broader manufacturing sector registering weak growth this quarter, the results of the CBI industrial trends survey due later today will be closely watched for insights of second quarter performance. Traders are also expected to keep a tab on news flow emanating from overseas markets for further updates about the global economic recovery. Additionally, with BoE policymakers contemplating an increase in the size of the FLS scheme, BBA loans data due tomorrow will be closely watched to decipher the efficacy of the present FLS scheme.

US Dollar – US Markets

“Risk off” sentiment prevailed in currency markets after today’s disappointing manufacturing data from China reflected recent signs of a slowdown seen in the latest GDP data, leading the US Dollar to gain traction against the majors this morning. Furthermore, weak manufacturing and services activity data across Europe added to market woes, prompting traders to seek shelter in safe haven currencies. Data released yesterday revealed that United States is not immune to the Global slowdown with existing home sales and Chicago national activity both showing an unexpected decline for March. The disappointing pace of home sales has further provided evidence that the positive momentum seen in the housing sector is beginning to subside. New home sales data due later today will be closely followed for further updates on this front. Moreover, a slowdown in US industrial production was visible in the Chicago activity index which slipped into negative territory. In line with the recent subdued readings from various regions in the US, the Richmond manufacturing activity report scheduled for release later today is also expected to offer lacklustre results.

Euro – European Markets

The single currency has lost steam and is trading close to the 1.30 mark against the US Dollar this morning after reports of dismal manufacturing activity in China prompted investors to seek shelter in safe haven currencies. Further adding to disappointment, data revealed that economic activity in Germany and the broader Eurozone contracted further for April, thereby fuelling speculation that the ECB would resort to a rate cut in the near future to boost the economy. Although France reported an improvement in economic activity, German manufacturing and services activity remained under pressure. German Ifo sentiment indices, due tomorrow, will be closely tracked for further signals on the state of the German economy and will likely have a bearing on the value of the Euro. Meanwhile, despite the fact that the Euro-area is sailing through choppy waters, data released yesterday showed that consumer morale in the Eurozone showed a suprising improvement for April. With a light economic calendar today, market sentiment is likely to remain subdued in the wake of dire PMI releases from Europe.

Other Currencies – Highlights

The Australian Dollar has declined against the greenback this morning as safe haven currencies derived support from the release of the weaker than expected manufacturing data from China for April, rattling Asian equity markets and underscoring concerns about global growth prospects. Moreover, a dire set of PMI releases in Germany and Eurozone further dented market sentiment. On the domestic front, the Conference board leading index of Australia's economic activity increased for a second consecutive month in February. With a lacklustre day ahead, Australian consumer price inflation data due tomorrow will be closely watched, considering its influence on the RBA’s future monetary policy stance. Additionally, traders will stay vigiliant for external cues to currency markets.