UK Escapes Triple Dip Recession

The Pound received a welcome boost as traders breathed a sigh of relief after data showed that the UK economy avoided a triple dip recession by a much wider margin than expected, largely due to the resilience of the services sector and a stable labour market. This should keep Sterling supported in today’s trading session and will quell calls for further quantitative easing. Meanwhile, signs of economic weakness continued to emerge from other developed economies, as data from the US showed that durable goods orders recorded their sharpest drop in seven months, adding to growing evidence that manufacturing activity is slowing. With signs of weakness eminating from Germany recently, their economic forecast, released today, will be closely watched.

Pound Sterling – UK Markets

The resilient services sector may be hailed as the saviour of the faltering UK economy, as data released at 9.30 revealed that the British economy managed to record sequential growth of 0.3% in the first quarter of 2013, defying market expectations of 0.1% growth. The Pound has gained significantly against the Euro and the US Dollar moving above the 1.54 mark against the greenback following the release of upbeat GDP data. Meanwhile, yesterday’s BBA report indicated a modest increase in the number of mortgage approvals for March amid a rise in demand by first time buyers, thereby providing signs of strength in the housing market. However, the CBI data continued to paint a dismal picture after their report revealed that retail sales surprisingly registered a negative print for April, as gloomy economic prospects continued to have an effect on consumer morale. Market sentiment is likely to remain buoyed during this trading session in the wake of positive GDP data.

US Dollar – US Markets

The US Dollar fell dramatically against the Pound in today’s trading session after data revealed better than expected UK GDP figures for the first quarter of 2013. The greenback erased most of its gains against the Euro in today’s trading session amid speculation that the Fed would not rush to alter its monetary stimulus programme. Durable goods figures out yesterday revealed that orders in the US recorded their biggest fall in seven months, further adding to growing evidence of a mediocre March for the world’s largest economy. Meanwhile, with the recent initial jobless claims data providing mixed results, traders will be closely eyeing today’s data for more insights into the nation’s labour market recovery. Additionally, given the recent dire manufacturing reports from various regions, today’s Kansas manufacturing activity is not expected to buck the downward trend. With the economy providing no clear direction, markets keenly await the GDP data due tomorrow to paint a clearer picture of the US economy in the first quarter of 2013.

Euro – European Markets

Although the Euro is trading higher against the US Dollar in today’s trading session in the wake of subdued economic releases from the US, gains remained capped as simmering worries in the Eurozone failed to provide further strength. Meanwhile, with the UK economy managing to avoid a contraction, the Euro suffered losses against the Pound in today’s trading session. German Ifo sentiment indices released yesterday painted a dismal picture and added to the perception of weak growth in Germany. The timing of the release could not be worse as it came on the back of the recent lacklustre PMI readings. Against this backdrop, the German government’s economic forecast due later today will hold market attention. As another wave of gloomy data washed over Europe yesterday, the ECB Vice President, Vitor Constancio, indicated that further evidence of dismal economic news would likely prompt the central bank to resort to rate cuts in order to reignite the ailing economy. With that in mind the ECB monetary policy meeting due next week would be keenly watched.

Other Currencies – Highlights

The Australian Dollar is trading higher against the greenback in today’s trading session as downbeat US durable goods data released yesterday further added to evidence that the Fed would maintain its dovish monetary policy stance, thereby prompting traders to search for high yield currencies. Meanwhile, data released yesterday indicated that Australian consumer price inflation rose less than expected for the first quarter of 2013, underscoring softness in the economy and spurring talk of a future interest rate cut. In this context, manufacturing PMI due next week would be keenly gauged to ascertain the pace of growth in the Australian economy. With little in store in terms of macro news today, traders are expected to keep a track of US initial jobless claims data scheduled for release today for further cues on risk appetite.