UK Finds Some Respite

The Pound gained traction after data confirmed that the UK economy steered clear of a triple-dip recession. The upbeat GDP data has quashed hopes of the BoE re-launching its quantitative easing next month. Meanwhile, further insight about the state of the UK’s economy is likely to emerge from the PMI releases next week. After a dismal fourth quarter performance, the broader consensus projects the US economy to buck the trend by posting strong growth in the first quarter. The Fed’s policymakers are expected to keep a close eye on today’s data ahead of their policy meeting next week. With Italy nominating its new Prime Minister, it remains to be seen whether the newly appointed leader manages to end the parliamentary deadlock.

Pound Sterling – UK Markets

After a challenging quarter in which two major rating agencies downgraded the UK’s credit rating, GDP data released yesterday provided some relief to the ailing economy. With the figures surpassing market estimates, Sterling rallied against the US Dollar and the Euro in yesterday’s trading session. Meanwhile, UK Chancellor, George Osborne, indicated that although the GDP figures looks encouraging, the UK is still not of out the woods and a there are still difficult decisions to be taken. An array of key economic releases due next week will be tracked for gauging the UK’s economic growth for the current quarter. While services activity largely performed well, the manufacturing sector has remained a major drag on the the UK’s performance. In this context the manufacturing and services PMI due next week are expected to shed light over the performance of the economy for April. Additionally, with the recent BBA report indicating a pickup in housing loans, a slew of economic releases on the housing front will be followed for insights into the housing recovery.

US Dollar – US Markets

The US Dollar is trading marginally lower against the Euro in today’s session as traders remain on the sidelines ahead of the GDP data scheduled for release later today. With recent economic indicators painting a mixed picture, markets keenly await first quarter GDP data in order to unearth a clearer picture of the nation’s growth in the initial phase of 2013. Meanwhile, data out yesterday has revealed that the number of Americans filing for unemployment benefit fell more than expected last week. For further clarity on the labour market outlook, ADP employment and non-farm payrolls data due next week will remain key events on traders’ radar. However, manufacturing activity in Kansas remained sluggish for April undermined by the slow growth of the US economy. With the regional indices providing lacklustre performance for the current month, the ISM manufacturing data due next week will offer an overall picture about the manufacturing activity in the US. Additionally, the FOMC meeting due next week would also garner market focus. Apart from GDP data, Reuters/Michigan consumer confidence figures due today is also expected to garner attention.

Euro – European Markets

A lack of decisive economic data has prompted traders to adopt a cautious stance leading the single currency to trade marginally higher against the greenback and the Pound in today’s trading session. The ECB Executive Board member, Joerg Asmussen, downplayed rate cut expectations yesterday as he indicated that interest rate cuts have a limited effect on peripheral economies due to impaired monetary policy transmission. Meanwhile, in the midst of substantial headwinds faced by the German economy, the German government has marginally raised its outlook on the nation for this year citing that lack of investments and weak exports are likely to be a drag on the nation’s performance. As Italy gets some respite in the political arena, it would be interesting to see if it is enough for the nation to successfully sail through the sale of its treasury bills later today. With a light domestic calendar, the US GDP data due today is likely to have a bearing on the single currency in today’s trading session. Going forward, the ECB meeting next week is expected to gain attention to gauge whether the central bank resorts to rate cuts to spear head the Euro-area economy.

Other Currencies – Highlights

The Japanese Yen strengthened against the US Dollar after the BoJ maintained its unprecedented plan to beat deflation in its meeting held today. Moreover, the central bank in its latest semi-annual economic outlook report reiterated that the domestic economic weakness is abating and is expected to return to a moderate recovery path around mid-2013, amid expectations that domestic demand remains resilient. The central bank also expects Japanese inflation to rise to around 2% during the latter half of the coming three-year period driven by the recent monetary easing measures. However, data released early morning today revealed that the consumer price index dropped more than forecast for March, thereby casting doubt over the central bank’s aggressive monetary easing measures. In the absence of any major domestic news, markets are expected to keep a tab on news emanating from the overseas markets for further direction in currency markets.