The World Bank is Not Enough

The World Bank lowered its global growth forecast for the current year, as the Euro zone and emerging economies continue to reel under pressure of the prolonged economic weakness. Despite, the economic outlook weighing on market sentiment, the greenback continued to remain under pressure against the majors this morning. In today’s session, market focus will revolve around US retail sales data, especially after US consumer confidence climbed to multi years high for May. Today’s report is expected to further strengthen calls for the tapering of QE3. At home, yesterday’s positive labour data continued to validate the belief that the UK economy is on the mend.

Pound Sterling – UK Markets

Signs of improvement in Britain’s economic landscape continued to act as a catalyst to Sterling’s resilience against the US Dollar. The Pound found support from the recent labour market report which showed that the number of people claiming jobless benefits fell for the seventh consecutive month in a row, highlighting that a recovery in the UK economy is taking effect. However, despite fresh signs of an economic revival, BoE policymaker, Paul Fisher, stressed the need to keep monetary policy loose for a longer period in order to achieve the expected growth as he feels that the British economy remains vulnerable to risk. Sterling is trading in a tight range against the US Dollar this morning, as markets adopt a cautious stance after the World Financial News Bank trimmed its 2013 global growth forecast to 2.2% from 2.4% projected earlier. With a light domestic economic calendar in today’s trading session, investors will set their sights on developments in overseas markets, especially macroeconomic data from the US, for further cues to risk appetite.

US Dollar – US Markets

In the absence of major domestic news, external events played a pivotal role in determining the direction of the US Dollar in yesterday’s trading session. Encouraging economic data from both the UK and the Euro zone led the greenback to register losses against the Pound and the Euro in yesterday’s trading session. Meanwhile, the US Treasury Department reported that the US budget deficit widened for May, broadly in line with market estimates. With the recent economic data from the US supporting speculation of an early withdrawal of the current monetary stimulus, retail sales and initial jobless claims data due later today will be closely watched for further insights into the current state of the economy. In the midst of a significant improvement in consumer morale, retail sales in the world’s largest economy is expected to nudge higher for May. Moreover, today’s initial jobless claims data will be keenly tracked to ascertain whether the recent uptrend seen in the labour market continued last week. Any positive surprises today are likely to assist the US Dollar to move higher against the majors, as it will further strengthen the belief that the US Fed might roll back its stimulus measures sooner.

Euro – European Markets

The single currency nudged higher against the US Dollar yesterday following upbeat industrial production data which indicated that monthly industrial output in the Euro zone surprisingly rose for April, underpinned by a rebound in the French factory activity. However, all is not well in the Euro zone economy, as the index provider, MSCI, demoted Greece into emerging markets category, making it the first developed nation to move in the emerging market status. The debt laden country is seen embroiled in political turmoil, as it faces public protest and a looming general strike over its decision to shut down the state broadcaster. The continued weakness seen in the Euro region also prompted the World Bank to lower its global growth forecast. However, the ECB, in its monthly report just released has remained cautiously optimistic, as it indicated that despite the prevalent weakness, the Euro region should stabilise and recover in the course of the year, albeit at a subdued pace. On account of a light European economic calendar today, trading sentiment is likely to be governed by news flows emanating from the other side of the Atlantic.

Other Currencies – Highlights

The New Zealand Dollar moved higher against its US counterpart in yesterday’s trading session, mirroring the overall strength seen in high yield currencies. However, the Kiwi Dollar has pared some its gains against the greenback in today’s trading session, as risk appetite remains subdued amid worries that global central banks might wind down their stimulus measures sooner and after the World Bank painted a dismal picture of the global economic growth. Meanwhile, the Reserve Bank of New Zealand, in its monetary policy meeting held overnight, kept its official interest rate steady at 2.5%. World News Feed. However, a change in policy stance going forward cannot be ruled out after the central bank Governor, Graeme Wheeler, indicated that surging housing market poses a risk to the financial stability. For further direction to the Kiwi Dollar, markets look forward to the manufacturing PMI and housing data due overnight. In the forthcoming week, New Zealand’s first quarter GDP and current account balance data will be watched closely for clarity over the impact of the recent global slowdown on the domestic economy.