UK and US on the Mend

“Risk off” sentiment prevailed yesterday after US initial jobless claims declined last week. With the US labour market regaining momentum, market participants fear that the current stimulus may be unwound sooner than thought. With the ECB in reaffirming its dovish stance in its recent bulletin, the G7 meeting starting today will shed light on policymakers’ views of the accommodative stance adopted by major global central banks. At home, yesterday’s decision by the BoE to maintain the status quo can be partly attributed to the recent upbeat UK macro releases. Additionally, data just out has indicated that the trade deficit in the UK narrowed for March, strengthening the belief that the economy is gaining momentum.

Pound Sterling – UK Markets

Pound Sterling – UK Markets Although upbeat UK industrial production figures nudged the Pound higher against the US Dollar yesterday, the initial optimism soon waned after an unexpected decline in initial jobless claims data fuelled speculation that the Fed might start tapering its bond buying programme. Further signs that the UK economy is gaining traction emerged after data indicated that monthly industrial activity rose more than expected for March, largely bolstered by an improvement in overall manufacturing activity and a recovery in oil and gas output. Data released this morning revealed that the Uk’s trade deficit narrowed for March. Coupled with the news that the NIESR estimated that GDP for the 3 months to April will rise by 0.8% it came as little surprise that the BOE Monetary Policy Committee voted to maintain the status quo in its meeting yesterday. In the absence of major UK economic news, traders are likely to track overseas developments for further direction. Meanwhile, unemployment report due next week will be closely scrutinised to ascertain the labour market condition in this quarter.

US Dollar – US Markets

US Dollar – US Markets The US Dollar moved higher against the majors yesterday after data revealed that the number of Americans claiming jobless benefits declined last week. An improvement in the US labour outlook has once again stoked speculation that the Fed might start altering its pace of asset purchases in the near future. Against this backdrop, the US Fed Ben Bernanke’s speech later today will be closely watched. However, implications of the speech could be fairly muted for the greenback, as the Fed Chairman is likely to present his views on the overall banking system. The US monthly budget statement also features on today’s macro calendar and should hold market interest. With the US government embarking on unprecedented fiscal tightening measures, the budget is likely to post a larger surplus for April. The G7 finance ministers and central bankers two-day meeting commencing today in London is also expected to hog the limelight. Going forward, a barrage of key economic releases from the US including retail sales and consumer price inflation data due next week will be closely watched for decoding the state of recovery in the world’s largest economy.

Euro – European Markets

Euro – European Markets An unexpected decline in the US initial jobless claims fuelled speculation of a premature withdrawal of the US Fed’s stimulus, leading the single currency to nudge below the 1.31 mark against the greenback in yesterday’s trading session. To add to these woes, the ECB in its monthly report indicated that the Euro zone economy is likely to witness sluggish growth and lowered its 2013 economic growth forecast for the region. Despite weaker prospects for the Euro zone economy, Spain saw decent demand in its bond auction held yesterday. It remains to be seen whether the Italian bill auction due later today also echoes similar results. Moreover, in line with the recent upbeat German figures, data released earlier today revealed that trade surplus in Germany rose more than anticipated for March. After a quiet week of economic data coming to an end, the Euro zone GDP data due next week will be keenly awaited and with recent macro numbers offering little reason to rejoice, the figures are not expected to provide any positive surprises.

Other Currencies – Highlights

Other Currencies – Highlights The Canadian Dollar lost ground against the greenback yesterday as investors turn optimistic on the world’s largest economy after an unexpected rise in the US initial jobless claims. Meanwhile, markets keenly await the Canadian unemployment report due later today for insights into the growth trajectory. While the recent manufacturing PMI and housing starts data have provided lacklustre results, a marked improvement in today’s report should plausibly put talks of further easing in the economy on the backseat and prop up the Canadian Dollar in today’s trading session. With no major releases apart from the unemployment report, markets are expected to keep an eye on the news flow emanating from the G-7 two-day meeting that begins today in London. Meanwhile, existing home sales and consumer price inflation data remain the key events on the nation’s economic calendar next week.