Positive Signs For Global Economy

The Euro-Sterling pair gained traction yesterday on signs that the German economy is treading the path of recovery, after data showed that factory orders unexpectedly climbed for March. A successful bond auction in Portugal also provided some respite to the Euro. Chinese trade data released earlier today surprised market participants on the upside, adding to signs of recovery in the global economy. However, the UK retail sector continued to offer mixed signals as data from BRC showed an unexpected decline in sales. With the latest macro data from the UK being broadly positive, the BoE is likely to continue with an unaltered monetary policy stance in tomorrow’s meeting.

Pound Sterling – UK Markets

The Pound pared gains against the single currency in yesterday’s trading session after German factory orders data offered a positive surprise, prompting traders to increase their bets on the Euro. An easing trend in UK shop price inflation failed to lure retail customers as witnessed by an unexpected fall in BRC retail sales data released earlier today, as cold weather and the uncertain economic outlook sapped demand. Meanwhile, the Halifax data released recently indicated that house prices climbed more than expected for April, showing market resilience. With a light domestic economic calendar today, UK industrial production data for March due tomorrow is likely to influence the direction of Sterling. The BoE policy meeting tomorrow also remains a key event on the radar. While it may be too early to presume that a recovery is under way, recent upbeat GDP and PMI figures for April should have given some support to the belief that the BoE must follow its wait and watch approach in the near term.

US Dollar – US Markets

The US Dollar has lost ground against the single currency this morning, as risk appetite received a boost after China’s better than expected trade data for April eased concerns over recovery in the world’s second largest economy. Recent spates of encouraging economic data from the US, China and Germany have provided some comfort for traders and has weighed on the performance of safe haven assets. Meanwhile, in an otherwise lacklustre day yesterday, the greenback nudged lower against the Euro for a brief period after German factory orders unexpectedly rose for March, prompting traders to flock to high yield currencies. On the domestic front, data released yesterday revealed that consumer credit in the US recorded its smallest increase in eight months for March, as an uncertain fiscal outlook undermined any appetite to take more debt. With little to ponder upon on the US economic front today, news flow emanating from the other side of the Atlantic and China’s consumer price inflation data due early morning tomorrow will prove decisive for the near term trend in currency markets.

Euro – European Markets

Buoyant German factory orders data helped the single currency to strengthen and nudge above the 1.31 mark against the US Dollar for a brief period in yesterday’s trading session. To add to the optimism, Portugal’s sale of 10-year bonds, its first since the bailout in 2011, attracted demand for three times the deal size. However, risk appetite faded in the latter half of the session, prompting traders to shun the Euro and seek shelter in the US Dollar. The common currency has bounced back and is hovering close to the 1.31 mark against the greenback this morning, after upbeat Chinese trade data reinforced hopes that the global economic recovery is slowly gathering momentum. Meanwhile, in sharp contrast to the recent subdued results eked out by the Eurozone’s largest economy, yesterday’s data revealed that German factory orders unexpectedly rose for March, buoyed by a pick-up in demand. With figures surprising markets, it remains to be seen whether today’s industrial production numbers in Germany echo similar results.

Other Currencies – Highlights

The Swiss Franc backtracked against both the greenback and the common currency in yesterday’s trading session, after data revealed that consumer confidence in Switzerland declined by a larger margin for April. Even an expected fall in the unemployment rate yesterday failed to appease Swiss Franc investors. Meanwhile, the Franc is range bound against the US Dollar and the Euro in today’s trading session. Data released earlier today indicated that the Swiss economy continued to face deflationary pressures for April, thereby providing adequate room for the Swiss National Bank to introduce additional easing measures to reignite the economy and beat deflation. With no major domestic data due for the week, the Swiss Franc is likely to rely on external cues for further direction. Traders are expected to keep a close watch on today’s German industrial production data for further insights to risk appetite.