A Busy Week Ahead

Market sentiment has remained broadly subdued at the start of this week’s trading session. The European finance ministers meeting in Brussels later today, to discuss issues related to the banking sector and the Greek bailout, will garner market attention. Moreover, the Euro zone GDP data later this week is expected to bring some volatility to risk appetite in the near term. At home, employment and inflation reports later this week will provide new numbers to assess the need for further easing measures going forward. Meanwhile, today’s US retail sales report and some other important macro releases during the week will offer a closer view of US economic conditions and the Fed’s future policy stance.

Pound Sterling – UK Markets

The Pound lost ground and nudged below the 1.54 mark against the US Dollar in Friday’s session as a lack of decisive triggers prompted investors to adopt a cautious approach. On Friday, data revealed that trade deficit in the UK narrowed for March, broadly in line with market estimates, as rising exports to non-EU countries offset large imports demand. Apart from the employment report and the BoE’s inflation report, no major economic events are scheduled during this weekly session. Market participants keenly await labour market data to gauge whether the recent improvement in the broader economy is reflected in the labour market. The UK quarterly inflation report also remains a key event and with inflation hovering well above the central bank’s comfort zone, the report should further dampen calls for more stimulus measures. With Sterling trading marginally higher against the majors this morning, the RICS house price balance data, due overnight, is keenly eyed and will shed some light into the nation’s housing recovery.

US Dollar – US Markets

“Risk off” sentiment on Friday helped the US Dollar to register gains against the Euro and Sterling. Meanwhile, data indicated that the US Treasury Department posted its widest budget surplus in five years for April, bolstered by a rise in tax revenue, thereby highlighting the influence of the recent sequester measures. In today’s session, markets are expected to keep an eye on US retail sales data in evaluating the nation’s macro profile. A negative print should weigh on the performance of the US Dollar against the majors, as it will support the case for prolonged easing by the Fed. This week also sees the release of consumer price inflation data and an easing trend is expected to provide the central bank with enough room to continue with its easy policy stance. Additionally, Reuters/Michigan consumer confidence data for May, due later this week, will provide early insights into the nation’s performance for this month. In today’s session, retail sales data and news flow emanating from Europe will prove decisive in deciding the direction of the US Dollar against the majors.

Euro – European Markets

The single currency slipped below the 1.30 mark against the US Dollar in Friday’s trading session as traders preferred to seek shelter in safe haven currencies. The Euro failed to gain traction even as Italy witnessed decent demand at a bill auction held on Friday. In the absence of major European economic data in today’s trading session, markets are expected to keep a tab on the news flows emanating from the European finance ministers meeting later today. The policymakers are likely to deliberate on measures for the creation of a banking union in the region. Additionally, measures to deal with fiscal problems faced by peripheral Euro zone economies will also feature on the agenda. Apart from the meeting, the Euro zone GDP data due later this week will have a profound influence on the movement of the Euro against the majors. With the report likely to indicate that a recessionary trend prevailed in the region for the first quarter, it remains to be seen whether the ECB opts to slash its benchmark interest rates further in the near future.

Other Currencies – Highlights

The Japanese Yen has suffered losses against Sterling and the US Dollar this morning after Japan escaped criticism over its aggressive monetary easing programme at the G-7 finance ministers meeting. This has increased prospects of the Bank of Japan maintaining its accommodative stance for a longer period. Markets are expected to keep an eye on Japanese consumer confidence and machine tool orders data, scheduled for release later this week, for insights into the pace of recovery. However, much of the market attention is likely to be swayed by the GDP data due on Thursday, which is expected to show that the Japanese economy expanded at a faster pace for the first quarter of 2013. With little in store in terms of macro news today, traders are expected to monitor overseas events for further cues on risk appetite.