UK Economy in a Purple Patch

In a boost to recent upbeat data, a report just out indicated that the number of people claiming jobless benefits in the UK continued to decline for April. This has raised interest in the BoE’s quarterly inflation report, due later today, to decipher the central bank’s stance on the economy. Across Europe, an unexpected contraction in the German economy during the first quarter, coupled with weak GDP readings in France and Italy, has raised serious questions over the efficacy of the ECB’s easing measures. With the Euro looking vulnerable in today’s trading session, the Euro zone GDP data and a raft of key US economic releases, due later today, will be gauged for further clarity to risk sentiment.

Pound Sterling – UK Markets

The Pound has strengthened against the US Dollar after the employment report revealed that the number of people claiming jobless benefits in the UK declined for April and the unemployment rate nudged lower for March, thereby supporting evidence of a pickup in economic activity. Moreover, data indicating a contraction in major European economies has led Sterling to move higher against the Euro. Meanwhile, markets keenly await the BoE’s quarterly inflation report due later today, given the recent drop in commodity prices. In the aftermath of upbeat economic releases, the BoE Governor, Mervyn King, in his last presentation before he is succeeded by Mark Carney in July 2013, is likely to revise the nation’s growth prospects upwards. Apart from the inflation report, the Euro zone GDP data and a barrage of key economic releases from the US, scheduled for release later today, will hold prominence for the near term dynamics of Sterling against the majors.

US Dollar – US Markets

Soft GDP data across major European economies earlier today has prompted traders to adopt a cautious approach, leading the US Dollar to trade on a firmer footing against the common currency this morning. Meanwhile, the Congressional Budget Office has estimated that the US budget deficit would fall by $200 billion to $642 billion for the fiscal year ending 30 September 2013, the lowest deficit since 2008. Further adding to optimism, the NFIB small business optimism index data, released yesterday, climbed more than anticipated for April. A raft of key economic releases due later today will be keenly eyed for hints to the probable timing of the withdrawal of stimulus measures in the world’s largest economy. With the recent retail sales figures surprising on the upside, markets keenly await today’s industrial production data to see whether the upward trend has also continued in the manufacturing sector. The NAHB housing price index due later today will also be on traders’ radar to gain a clearer picture of the housing sector.

Euro – European Markets

With the first quarter GDP data across major European countries coming in well below market expectations, the single currency has lost steam and nudged close to the 1.29 mark against the greenback in today’s trading session. The Euro zone GDP data, due today, is also likely to portray similar concerns. Better than expected Euro zone industrial production failed to lift market sentiment yesterday as the ZEW survey revealed that economic sentiment in Germany remained low for May. With growth in the Euro zone economy remaining elusive, further pressure on the common currency in the near term cannot be ruled out. Meanwhile, just a day after European creditors awarded a bailout tranche to Greece, the debt-laden nation received further impetus yesterday, as Fitch upgraded its sovereign credit grade by one notch, citing the nation’s progress in tackling the budget deficit and lower risk of a Greek exit from the Euro zone. In today’s session, market sentiment is likely to remain subdued, unless the Euro zone GDP data surprises on the upside. Additionally, developments taking place in overseas markets will have a bearing on the single currency going forward.

Other Currencies – Highlights

The Australian Dollar has declined against the greenback in today’s trading session after dire first quarter GDP data across Europe prompted traders to flock to safe haven currencies. Moreover, the situation at home is no different, as the Australian Treasurer, Wayne Swan, in his federal budget, yesterday indicated that the nation is likely to register a $19.2 billion deficit for the current financial year, largely affected by a slowdown in mining activity. Additionally, data released earlier today failed to provide any positive outlook for the Australian economy, as new motor vehicle sales declined at a faster pace for April. With little on the domestic economic calendar in the week ahead, markets are expected to keep a track on a flurry of major economic releases from the US for further cues to risk appetite.