UK Teeters on the Edge

In line with the previous estimate, today’s final fourth quarter GDP reading has confirmed a 0.3% sequential contraction for the fourth quarter. Current account deficit data also came in worse than expected, further decreasing the Pound’s value. Yesterday’s CBI retail sales survey was also dismal, in contrast to the recent upturn seen in official retail sales figures. The US economy looks to be on a roller coaster ride following upbeat durable goods and home prices data. Today’s pending home sales looks set to provide further evidence of this improvement. Across Europe, Italian bond auctions and EU confidence indices due later today should dictate the trend in the Euro.

Pound Sterling – UK Markets

The Pound slipped against the US Dollar yesterday after CBI retail sales survey poured cold water over buoyant retail sales numbers released last week. Data revealed that retail sales in Britain were flat this month, the worst performance since August 2012, primarily impacted by cold weather and sticky inflation. With the UK economy teetering on the brink of a triple-dip recession, the CBI data has raised fears over the health of the British consumer sector. Meanwhile, the final GDP figures just out have confirmed that the UK economy slipped into a sequential contraction in the last quarter of 2012. Additionally, current account deficit data just released has surprised on the downside for the fourth quarter. Meanwhile, the UK Chancellor of the Exchequer, George Osborne, condemned the handling of the Cyprus bailout and stated that Britain is working with Cypriot authorities to ensure that UK-based branches of Cyprus Popular Bank are not subject to the bailout terms agreed between Cyprus and its international lenders. With a lacklustre week ahead, movement in Sterling is likely to be governed by developments in overseas markets.

US Dollar – US Markets

Amid a lack of decisive triggers in today’s trading session, the US Dollar is trading in a tight range against the majors in today’s trading session. Data out yesterday can be termed as mostly positive and continues to provide hints that economic growth is gaining traction. Durable goods orders, in line with the ISM manufacturing data, posted robust growth for February buoyed by a rise in demand for transportation vehicles. Additionally, data showed that house prices climbed for January at the fastest pace since the summer of 2006, before the US housing bubble popped. However, consumer confidence data out yesterday revealed a notable deterioration in sentiment, which can be primarily attributed to the uncertainty surrounding the economic outlook after across-the-board government spending cuts took effect from this month. With the fiscal uncertainty taking a toll on confidence, it would be interesting to watch whether the US economy weathers the fiscal woes and continue to post robust performance. With new home sales released yesterday failing to replicate the recent stellar performance of the housing sector, today’s pending home sales is likely to grab focus to gauge whether recovery in the sector remains intact.

Euro – European Markets

Persistent worries surrounding the Cyprus bailout has kept investors on the edge and led the single currency to register losses against the US Dollar in today’s trading session. The single currency has struggled amid fears that depositors in the other crisis hit regions could face similar haircuts. With the Cypriot government gearing up to tighten its capital control measures to prevent a run on its banks by depositors after the country agreed on a painful rescue package, tomorrow would likely prove crucial for risk sentiment as Cyprus re-opens its banks after being closed for more than a week. With recent European macro releases painting a grim picture, Eurozone sentiment indices due later today are also likely to deteriorate for March amid persistent concerns in peripheral economies. Meanwhile, despite increased pressure from Italy to form a stable government, the nation witnessed a fall in borrowing costs at a bill auction held yesterday. In this context, Italian long term bond auctions scheduled for today are likely to hog the limelight for further cues on risk appetite.

Other Currencies – Highlights

The Aussie Dollar has declined against the US Dollar in today’s trading session as Cyprus bailout concerns continue to have a bearing on risk appetite. Additionally the RBA, in its Financial Stability Review, indicated that renewed market tensions over the crisis in Cyprus have shown that financial risks continue to weigh on global economic growth. The review has also revealed that lower commodity prices have weighed on the mining sector and related businesses. Taking this current assessment into account, it will be interesting to keep an eye on next week’s RBA monetary policy decision for further cues. In today’s trading session, TD securities inflation data in Australia will likely provide further food for thought to the central bank. Additionally, private sector credit data should be closely watched for cues on the overall health of the economy. However, next week could prove decisive for the Australian Dollar, given the RBA’s monetary policy decision and domestic PMI data.