No Respite for the Pound

With UK policymakers inclined towards a loose monetary policy regime, and with today’s manufacturing PMI showing an unexpected contraction, the Pound is under considerable pressure. Moreover, downbeat mortgage uptake and consumer credit data have aggravated downside risks to the Pound. Policymakers now await the remaining set of PMI indicators due next week before deciding their stance at the next monetary policy meeting. Meanwhile, the US economy is likely to bear the brunt of political brinksmanship, as fresh spending cuts look set to trigger due to the absence of any consensus on the issue. With the revised US GDP data showing an expansion yesterday, market will look closely into manufacturing PMI later today for further hints.

Pound Sterling – UK Markets

Sterling has come under severe pressure against the majors this morning after data just out has revealed that manufacturing activity in the UK has surprisingly entered into a contraction phase for February, escalating worries about the UK economy. In line with the BBA loans data released recently, mortgage approvals data released today has shown a downward trend, signaling that the positive effect of the FLS scheme on the housing sector is slowing fading. Additionally, data showed that consumer credit in the UK fell less than expected for January. The inability of US lawmakers to reach a deal to avert the looming spending cuts has also kept risk appetite in check in today’s trading session. Against the backdrop of weak manufacturing activity data, services PMI due for release next week would be closely watched for insights into the overall development of the UK economy. Additionally, given the sluggish economic growth, it remains to be seen whether the central bank resorts to additional measures to boost the UK economy in its monetary policy meeting next week.

US Dollar – US Markets

The US Dollar has registered marginal gains against the single currency amid lower risk appetite among traders after neither the Democrats nor the Republicans could reach a consensus on the spending cuts in the Senate yesterday, thereby making across-the-board cuts for fiscal 2013 effective from today. Adding to the woes, the IMF warned that a failure to avoid the spending cuts would lead to a slower growth in the world’s largest economy and hit global economic growth. However, with the Fed recently reaffirming that it would continue with QE, the impact on the US GDP from spending cuts looks limited. On the domestic front, yesterday’s update on the fourth quarter GDP revealed that the US economy managed to register a modest 0.1% annualised growth, buoyed by a rise in exports and business investment. Additionally, number of people claiming jobless benefits also declined more than expected last week. However, regional indices continue to confound traders, following mixed manufacturing activity data from Kansas and Chicago regions. Against this backdrop, markets are expected to stay focused on the ISM manufacturing data later today to gauge the broader trend in the US manufacturing sector.

Euro – European Markets

The single currency failed to hang on to yesterday’s highs against the US Dollar in today’s trading session as eminent worries in the Italian political arena and a failure to reach a budget deal in the US Senate dampened market sentiment. Markets fear that Italy would not be able to continue with its structural reforms and austerity measures following an inconclusive election result. Additionally, yesterday’s final reading on consumer price inflation in Eurozone offered room to the ECB to continue with its dovish stance. In this context, today’s preliminary Eurozone inflation estimate for February and unemployment data would garner attention ahead of the ECB’s monetary policy meeting due next week. Meanwhile, final readings of manufacturing PMI data across Europe, except Germany, have continued to paint a dismal picture for the Euro-area. Additionally, the second window of LTRO repayments due for release today is not expected to provide any upbeat news. However, employment situation in Germany showed an improvement while retail sales have rebounded from a slack seen last month, signalling that German economy remains solid as a rock.

Other Currencies – Highlights

The Australian Dollar has failed to garner traction against the US Dollar in today’s trading session after data indicated that manufacturing activity in Australia continued to remain in contraction territory, as manufacturing growth remained subdued despite low interest rates. Additionally, the Chinese official PMI data revealed that manufacturing grew at its weakest pace in five months for February, as demand remained weak after several factories remained shut down for the Lunar New Year holiday. Risk sentiment among market participants was also hit, after failure to avoid the looming budget cuts in the US from expiring rekindled worries surrounding global growth. Going into the next week, a slew of economic releases from Australia are expected to be keenly watched to gauge the state of nation’s economy. Besides, the RBA’s monetary policy decision due next week remains a key risk event on traders’ radar.