Italy Ends Political Impasse

Recent US economic indicators have offered alarming signals, as GDP data undershot market expectations due to anaemic economic data in the latter half of the first quarter. Taking this trend into account, traders are likely to keep a close eye on this week’s manufacturing and labour market figures for clearer insights into the economy. Meanwhile, risk sentiment in today’s trading session remains supported, as a ray of hope emerged from the Eurozone after Italy formed a coalition government over the weekend. Further direction to risk appetite is likely to be governed by confidence indices in the Eurozone and a raft of economic data from the US due later today. For Sterling, PMI readings scheduled during the week holds significance.

Pound Sterling – UK Markets

The Pound maintained its upward momentum and surpassed the 1.55 mark against the US Dollar, as buying interest remained intact after the UK economy dodged an unprecedented triple-dip recession last week. Moreover, the overnight Lloyds business barometer survey indicated an improvement in both economic and business sentiment for the second month in a row for April. Following dismal retail sales data from CBI last week, today’s GfK consumer confidence survey could offer some clarity about UK consumer morale in the midst of a fairly resilient labour market. Additionally, tomorrow’s lending data from the BoE is expected to shed some light into the UK housing market. However, much market interest is likely to revolve around manufacturing and services PMI data scheduled during the week for hints to whether the UK economy sustained growth momentum in April from a relatively sanguine first quarter. While services activity is expected to remain in expansion territory, manufacturing activity is likely to contract, albeit at a slower pace for April.

US Dollar – US Markets

The greenback nudged lower in Friday’s trading session, largely hurt by weak first quarter GDP data. Economic growth in the first quarter was lower than estimates, highlighting the considerable change in economic fundamentals in the latter half of the first quarter. However, risk appetite remained firm in today’s session, buoyed by an end to political gridlock in Italy. With the recent retail sales and durable goods orders data from the US stirring fresh concerns over growth prospects in the economy, the key set of manufacturing indicators and the all important labour market data from the US are likely to garner interest in this week’s session. With the Fed expected to maintain its policy tools in this week’s monetary policy meeting, the central bank’s follow-up statement should shed some light on the stance that the Fed plans to adopt going forward. Going forward today, personal consumption and spending indicators will be closely watched in order to unearth reasons for the recent weakness in the retail sector. Additionally, pending home sales and Dallas Fed manufacturing activity index, due later today, also has the potential to alter market sentiment.

Euro – European Markets

The Euro remained fairly resilient against the US Dollar in Friday’s session, as a less than expected improvement in US economic growth for the first quarter propelled speculation that the Fed would maintain its ultra loose monetary policy stance for a longer than expected period. However, gains remained capped, as dismal Eurozone data in the past week heightened speculation of a possible rate cut in future. In today’s trading session, the Euro has managed to gain traction against the greenback and is hovering close to the 1.31 mark, after Italy ended an almost two-month long political gridlock by forming a coalition government over the weekend. The Democratic Party deputy leader, Enrico Letta, has become the Prime Minister of the coalition that includes Silvio Berlusconi's People of Freedom party. Against this backdrop, today’s long term bond auction in Italy is also likely to witness a positive response. Additionally, the Eurozone confidence indices due later today will prove to be of prime importance in deciding the course of the ECB’s stance in the immediate future. Additionally, German inflation data later today is also expected to garner market interest.

Other Currencies – Highlights

The Australian Dollar is trading higher versus the US Dollar but is largely flat against the single currency and Sterling in today’s session, as traders await a key set of global macroeconomic indicators scheduled during the week. Apart from monetary policy meetings in Europe and the US, traders are expected to keep a close watch on manufacturing data from China for any signs of recovery in the economy. However, China’s economic prospects remain bleak, as data released during the weekend showed that growth in Chinese industrial profits slowed for March. For the week ahead, a key set of manufacturing and housing data from Australia is likely to have an influence on the trend for the Aussie Dollar against the majors. This should help the Reserve Bank of Australia in assessing the health of the economy, ahead of its monetary policy meeting due next week.