US Moves to Greener Pastures

Fears of recent spending cuts jeopardising the global economic recovery took a back seat, after data revealed robust growth in US retail sales, evidently supported by an improving labour market and consumer morale. With the prospect of monetary stimulus remaining intact until the end of 2013 being questioned, today’s jobless claims data will be closely watched to ascertain whether recovery in the labour market is a continuing trend. Across Europe, lukewarm Italian bond auctions and downbeat Eurozone industrial production data, released yesterday, weighed on the performance of the Euro against the majors. Apart from today’s Spanish bond auctions, the build up to the UK budget and EU finance ministers’ meeting will remain key triggers for risk appetite.

Pound Sterling – UK Markets

With an uneventful week in terms of economic releases in the UK ahead, Sterling remains fairly insulated from any independent moves. The Pound is trading close to yesterday’s highs against the common currency this morning as the outlook for the European economy darkened following a dismal set of economic releases in Europe. Additionally, the Sterling-US Dollar pair, which was under pressure yesterday due to strong US retail sales data, has recovered some of its losses in today’s session. In the quarterly report, the BoE noted that the weakness in the Pound was mainly due to prevalent worries over the UK economy and visible after effects of the recent credit rating downgrade by Moody’s. With the budget drawing closer, the annual conference of the British Chamber of Commerce, scheduled today, will be watched. The influential business group is likely to urge the UK government to loosen its austerity stance to aid the nation’s economic recovery. Developments from overseas markets could hold more significance for the Pound during the week, on account of a relatively light domestic economic calendar.

US Dollar – US Markets

Upbeat retail sales from the US, coupled with downbeat industrial production from the Euro-area, helped the US Dollar to garner traction against the single currency in yesterday’s trading session. Data released yesterday indicated that retail sales in the world’s largest economy grew by the most in five months, buoyed by an improving macro economic outlook and labour market conditions. Further lending a helping hand, the US treasury revealed that a delay in tax refunds and lower defence spending helped the US budget deficit to narrow in February compared to the same month a year ago. In today’s session, market participants are expected to keep a tab on producer inflation figures ahead of the consumer price inflation data due tomorrow, to gain further insights into inflationary pressures in the economy. Additionally, with the labour market registering considerable traction, today’s initial jobless claims data will also hold prominence. While the US economic data continues to lean on the side of growth, political battles in Washington over fiscal issues could weigh on market sentiment.

Euro – European Markets

The Euro lost ground against the majors and slipped below the 1.30 mark against the US Dollar in yesterday’s trading session, after data revealed a larger than expected monthly fall in Eurozone industrial production and a drop in demand for Italian bonds. Flagging industrial output failed to calm market anxiety and hinted that the economy would likely post a successive quarter of contraction. Adding to woes, Italy witnessed a rise in its borrowing cost and a dip in demand at the long term auction held yesterday, amid political gridlock and the nation’s credit rating downgrade by Fitch. With the region facing headwinds, the ECB’s bulletin later today should be keenly tracked for any hints to the worsening economic situation in the region. Going forward today, Spain’s special ultra-long bond auction is also expected to garner market attention. However, most market focus will revolve around the two day EU meeting in Brussels commencing today. With the European Parliament challenging the historic budget cuts agreed by leaders last month, a revised budget is likely to find its way onto the agenda. Additionally, the region's austerity measures and rising youth unemployment is also likely to feature in their discussions.

Other Currencies – Highlights

The Australian Dollar has strengthened against the greenback this morning after data indicated a sharp improvement in labour market conditions in Australia, thereby lowering chances of an immediate interest rate cut by the RBA. The employment report revealed that the nation posted its strongest monthly employment growth in thirteen years, revealing a substantial improvement in the economy. In a separate report, data indicated that annual consumer inflation expectations ticked higher for March. However, with inflation expectations still in the RBA’s target range, the central bank is not likely to tighten its policy in the near term, given the positive change in the domestic economic landscape. With no major economic releases ahead, traders are likely to monitor developments from overseas markets for further cues.