UK Economy On The Mend

In line with the recent upbeat UK GDP numbers, data just out has indicated that consumer credit and mortgage approvals in Britain climbed at a steady pace for March. However, the deterioration in UK consumer confidence for April does not bode well for the second quarter. In Europe, euphoria surrounding political stability in Italy was reflected at a bond auction wherein the yield fell to multiyear lows. Eurozone CPI and unemployment data due later today will be tracked for cues on future monetary policy stance ahead of the ECB meeting on Thursday. The Fed’s monetary policy meeting commencing today will also be eyed to see whether recent weak economic data prompts policymakers to adopt a more dovish stance.

Pound Sterling – UK Markets

The Pound is range bound against the US Dollar and the Euro in today’s trading session as markets preferred to adopt a cautious stance ahead of key economic releases from the Eurozone and the US due later today. Meanwhile, data just released has revealed that mortgage approvals in the UK climbed more than expected for March, in line with the BBA report, thereby offering evidence of a strengthening in the housing sector. Against this backdrop, Nationwide house prices data due tomorrow will be gauged for further updates. However, an overnight consumer confidence survey indicated that consumer morale unexpectedly dipped for April, as a sticky inflation outlook raised concerns about personal finances. Meanwhile, data released today has showed that consumer credit demand continued to grow for April. With little in store in terms of macro news, markets are expected to keep a tab on manufacturing PMI for April, due tomorrow, for early insights into the nation’s manufacturing outlook for the second quarter. With manufacturing activity remaining a major drag on the UK’s economic performance in the first quarter, it remains to be seen whether tomorrow’s figure offers some respite to investors.

US Dollar – US Markets

The US Dollar is trading close to yesterday’s lows this morning, as the Fed commences its two day monetary policy meeting later today. In the aftermath of subdued macro economic data and easing inflationary pressures in the US, policymakers could maintain their accommodative stance for longer than expected in order to support economic activity. Moreover, easing sovereign debt worries in the Eurozone and hopes of a continuing loose monetary policy stance by major global central banks also contributed to weakness in the greenback yesterday. On the macro front, data released yesterday indicated that core personal consumption expenditure in the US stalled and manufacturing activity in the Dallas region unexpectedly contracted, offering further signals about the weakness in economic activity. However, the housing sector remained fairly resilient, as pending homes sales continued to grow at a strong pace for March. Apart from the outcome of the keenly awaited monetary policy meeting tomorrow, traders are also expected to keep a close watch on today’s consumer confidence data for signs on whether easing price pressures boosted consumer morale.

Euro – European Markets

Decent Italian bond auctions and downbeat US economic data helped the single currency to trade on a firmer footing against the greenback in yesterday’s trading session. However, with the Eurozone economy awaiting unemployment and consumer price inflation data later today, the common currency has come under pressure marginally and is trading below the 1.31 mark against the US Dollar. With the Eurozone economy facing substantial headwinds and inflation hovering well below the central bank’s target range, a dire unemployment report is likely to bring the Euro under further pressure. The dismal data will further strengthen the belief that the ECB might resort to a rate cut in its monetary policy meeting due later this week. Meanwhile, retail sales and unemployment data in Germany released earlier today has surprised market participants on the downside. The Gfk report offered some respite after data showed that consumer confidence in Germany climbed for May, thereby offering some hopes of a recovery in the Eurozone’s largest economy. Apart from Eurozone macro data, events unfolding in Cyprus are likely to have a bearing on risk appetite in today’s trading session .

Other Currencies – Highlights

The Japanese Yen is trading on a stronger footing against the US Dollar and Sterling in today’s trading session. There was a mixed bag of data released in Japan today, with the jobless rate easing for March while retail sales fell more than expected. Japan’s unemployment fell to 4.1 percent for March, the lowest in more than four years, thereby signalling an improvement in the nation’s economic outlook. However, retail sales declined more than anticipated, defying actions of the central bank which recently announced massive stimulus measures aimed at boosting growth. Moreover, industrial production also grew at a weak pace for March. In the absence of major domestic news today, markets are expected to keep an eye on the Eurozone unemployment rate and US macro data for further cue on the direction in currency markets. Additionally, markets are expected to give passing attention to the labour cash earnings and official reserve assets data in Japan due later in the week.