Markets on the Edge

Yesterday, high yield currencies consolidated their position as traders booked profits in the greenback. However the macroeconomic scenario in the Euro zone remains precariously poised, as the OECD expects the region’s economic growth to remain fragile. Sensing the need to relax their tough austerity stance, the EU provided considerable leeway to major European economies for lowering their deficits. In the midst of the growing suspense surrounding the Fed’s next move, today’s raft of US economic data will attract market interest. Some European confidence indices scheduled later in the day also have the potential to sway market sentiment. Meanwhile the UK recovery remains volatile, as the CBI survey yesterday revealed a sharp slowdown in retail demand for May.

Pound Sterling – UK Markets

The Pound strengthened against the US Dollar after finding resistance at 1.51 in yesterday’s trading session. Despite evidence of improving economic prospects, the OECD yesterday lowered its 2013 economic growth forecast for the UK economy to 0.8% from 0.9%. However the agency called on the UK Chancellor to persist with the proposed austerity measures. Meanwhile the CBI survey yesterday posted surprisingly anaemic numbers for May, thereby casting doubts over the recent recovery seen in the economy. In today’s trading session, Sterling has remained resilient against the greenback after the Nationwide house price Index revelealed prices in the UK edged up for May, suggesting that easing credit conditions continued to have a positive influence on the housing market. The Gfk consumer confidence data scheduled for release later today is likely to grab market attention for further hints into consumers’ perspective on the economic outlook. Apart from the GfK consumer confidence data, trading sentiment will be driven by the news flow emanating from the US in today’s trading session.

US Dollar – US Markets

Profit taking by traders led the US Dollar to register losses against the Euro and the Pound in yesterday’s trading session. Meanwhile, the Boston Fed President, Eric Rosengren indicated that the US Fed should consider a partial withdrawal of the central bank’s current asset purchases, if the economy shows gradual improvement for the next few months. Against this backdrop, a barrage of key macro data from the US scheduled for release later today will prove decisive for the greenback. Markets will keep an eye on the second estimate of US GDP figures for further clarity on the economic performance in the first quarter of 2013. With the US housing sector treading the path of recovery, today’s pending home sales data will provide further cues on this front. However, today’s initial jobless claims report will garner most of market attention as trader attempt to ascertain whether the improvement in the labour market continues. Any positive movements should help the US Dollar to climb higher, as it will support the case for premature withdrawal of the current monetary stimulus. Apart from domestic macro releases, markets will eye European economic data for further cues to risk appetite.

Euro – European Markets

Despite Germany reporting dismal job data and the OECD slashing its growth forecast for the Euro zone economy, the single currency gained traction and breached the 1.29 mark against the US Dollar in yesterday’s trading session. Yesterday’s data revealed that the unemployment level in Germany, the Euro zone’s largest economy, climbed for May, thereby raising fears that crises in the peripheral economies is engulfing the core Euro zone nations. With the Euro zone economic growth clouded with uncertainty, the OECD slashed its economic growth forecast for 2013 citing ongoing fiscal consolidation, weak confidence and tight credit conditions in the Euro zone. With tough austerity measures derailing the region’s growth, the European Commission granted additional two years to France, Spain and other major economies to slow the pace of fiscal tightening in a bid to revive growth in the Euro-area. In today’s trading session, markets are expected to keep an eye on Euro zone sentiment indices which are expected to show an improvement for May. This should keep the Euro well supported today, unless the US economic data due later in the day heightens speculation of an early withdrawal of QE3.

Other Currencies – Highlights

The Swiss Franc has strengthened against the Euro and the US Dollar in today’s trading session following an upbeat GDP report. Data released earlier today revealed that the Swiss economy expanded more than expected for the first quarter of 2013, buoyed by robust consumer spending. Moreover, the UBS report released yesterday revealed that consumption in Switzerland increased significantly for April, largely underpinned by new car registrations, improvement in consumer sentiment and higher demand for hotel accommodation. With the nation treading the path of recovery, the KOF leading indicator due tomorrow will garner market focus which is expected to show an improvement for May. For the session ahead, the trend in the Swiss Franc will be governed by events unfolding in overseas markets, especially the US.