Euro Bounces Back

As we approach the end of the week, there appears to be renewed optimism towards the Euro zone, as the GfK and the Ifo sentiment indices surprised market participants on the upside for May. This comes on the back of yesterday’s upbeat Euro zone manufacturing and services PMI data and has provided some solace to the Euro against the majors. Investors will look forward to today’s durable goods orders numbers in the US to determine any shift in risk sentiment going forward.

Pound Sterling – UK Markets

The Pound strengthened against the US Dollar and moved briefly above the 1.51 mark in yesterday’s trading session, as investors moved towards Sterling amid market speculation that the recent decline in the currency pair was overdone. Additionally, GDP data confirmed that the UK economy managed to dodge a triple dip recession for the first quarter of 2013, providing further support to the Pound. Meanwhile, the BBA data just released indicated that loans for house purchases continued to rise for April, suggesting that the BoE’s recent moves to bolster the property market are gathering pace. With the housing sector showing signs of recovery, a barrage of key economic releases on the housing front due next week will be evaluated closely for further insights into the efficacy of the BoE’s FLS scheme. Markets are also expected to keep an eye on GfK consumer confidence and CBI reported sales data due next week for insights into second quarter performance. With little in terms of macro releases in the UK today, durable goods orders data in the US scheduled later today will prove crucial for risk appetite.

US Dollar – US Markets

An improvement in PMI readings across Europe led the greenback to trade under pressure against the single currency yesterday. Meanwhile, the closely watched economic calendar in the US yesterday revealed an upbeat set of numbers, though it failed to prop up the greenback, especially after the recent hawkish comments from Ben Bernanke. The new home sales and house price index data helped in strengthening the belief that the US housing sector is gaining momentum. The jobless claims numbers also surprised on the upside, as data revealed that the number of Americans claiming jobless benefits fell more than expected last week. Moreover, in sharp contrast to recent dire releases from a few regions, the Kansas manufacturing activity index surprisingly rebounded for May. This has shifted focus to next week’s other regional releases to unearth a clearer picture about the nation’s manufacturing activity. Hogging the limelight today is the durable goods orders report, which is expected to show an improvement for April. A buoyant set of figures will spur speculation that the Fed will scale back its stimulus measures in the near term. However, this still remains a distant reality, as the St. Louis Fed President, James Bullard, opined that with inflation hovering well below the central bank’s target, tapering the bond purchase programme is still not on the cards.

Euro – European Markets

The single currency gained traction against the US Dollar as upbeat PMI releases from the Euro zone raised hopes of a rebound in the region’s economic recovery. The Euro has maintained its upward trend against the majors today, as the German sentiment indices data released earlier today came in better than expected for June, thereby offering respite that the region’s largest economy is not succumbing to the Euro zone debt troubles. However, all seems not well in the Euro zone economy, as the ECB governing council member, Ewald Nowotny, cautioned that the Euro region is not likely to experience any significant improvement and that June’s forecast could help the central bank in deciding the future course of policy action. To add to the woes, Spain witnessed a rise in borrowing costs at a long term bond auction held yesterday, the first rise in four months. With a seemingly lacklustre day ahead, risk appetite will be driven by news flow emanating from the other side of the Atlantic.

Other Currencies – Highlights

The Kiwi Dollar also moved higher against the greenback, in line with other high yield currencies yesterday amid “risk on” sentiment among investors, offsetting the initial sell off in high yield assets following hawkish comments from the Fed Chief. However, the New Zealand Dollar has came under pressure versus its US counterpart in today’s trading session after data released earlier today revealed that New Zealand’s trade balance recorded a smaller than expected surplus for April, as a rise in petroleum imports undermined increasing meat exports. In today’ trading session, market participants will keep an eye on the US durable goods orders data for further direction to currency markets. Moreover, with no major macro releases from New Zealand scheduled next week, developments taking place in overseas markets will hold prominence for the near term trend in the Kiwi Dollar against the majors.