UK GDP D-day Tomorrow

The BoE has announced plans to expand its lending scheme in order to support credit growth in the ailing economy. However, all eyes will be on tomorrow’s GDP data that is likely reveal that the UK economy escaped a recession, broadly supported by the resilience displayed by the services sector. Data from BBA revealed an improvement in demand for mortgage loans in the UK, while CBI reported sales data will be closely monitored for trends from the retail sector. Following dismal German PMI data, today’s macro data showed signs of weakness in the German business climate, highlighting fresh woes for the Eurozone’s growth prospects. Durable goods orders data from the US will remain a key highlight in today’s session.

Pound Sterling – UK Markets

The Pound has moved higher against the USD while recouping some of its early session losses against the Euro, after data revealed that loans for house purchases climbed for March and thereby offering evidence that the BoE’s FLS scheme seems to be having a material impact in lifting bank lending activity. With the BoE announcing plans to expand the scheme, the resultant effect should contribute positively to overall economic activity. Meanwhile, the first quarter GDP results due for release tomorrow are expected to have a profound influence on Sterling in the near term. With the consensus pointing towards a marginal uptick in first quarter growth, a negative outcome would likely bring the currency under pressure. The CBI survey released yesterday indicated that factory orders unexpectedly declined for April, highlighting the fact that the UK’s manufacturing activity remains in a precarious situation. In this context, CBI reported sales data due today will be gauged for further insights.

US Dollar – US Markets

Traders have adopted a cautious stance after the German Ifo sentiment indices signalled deterioration in business confidence in Europe’s largest economy, thereby supporting the US Dollar against the single currency in today’s trading session. In sharp contrast to recent indicators from the housing front, new home sales edged higher for March, thereby reinforcing hopes that the housing recovery remains intact despite minor shocks. However, manufacturing activity remains a concern, as the Richmond Fed Manufacturing Index deteriorated significantly for April, in line with weak readings reported from other regions and further raising fears that the US economic recovery is losing momentum. Meanwhile, markets are expected to keep a tab on durable goods data due today. With the recent manufacturing and industrial production data revealing a slowdown, today’s data is not expected to bring about any positive surprises. However, today’s data is likely to set the stage for the all important US GDP data scheduled for release later this week. Meanwhile, markets are also expected to keep a tab on external cues for further direction to currency markets.

Euro – European Markets

The single currency lost ground against the US Dollar in today’s trading session, as Ifo data revealed that lingering concerns have led to a decline in business morale in Germany, thereby stoking speculation that the ECB might cut rates to rekindle the faltering economy. Meanwhile, Spain witnessed a fall in borrowing cost as the nation witnessed a decent demand at its auction held yesterday. However, robust Spanish bond auctions garnered muted response in the Euro as PMI numbers from Germany point to still subdued prospects, raising concerns over a further economic contraction in the Eurozone. Meanwhile, with Italy’s political arena regaining momentum, the nation’s bond auction due later today will be keenly watched. With little in store in terms of macro news, noises from a few ECB officials later today are likely to hog the limelight in decoding the central bank’s future policy moves.

Other Currencies – Highlights

The Kiwi Dollar came under pressure against its US counterpart yesterday after downbeat PMI data from China and Germany raised concerns about the global economic recovery. However, the currency has managed to recoup its losses and is trading higher after the Reserve Bank of New Zealand (RBNZ) today decided to keep its official interest rate unchanged at 2.50%. Moreover, the central bank indicated that despite a pickup in economic activity, it is likely to keep rates unchanged through the end of the year as inflation remains well contained. Further, the RBNZ Governor, Graeme Wheeler, reiterated that the New Zealand Dollar remains overvalued and needs more support. In this context, trade balance data due tomorrow will help to decipher whether the high currency value is proving detrimental for exports.