UK Trade Deficit Narrows

The IMF’s upbeat assessment of the UK economy, citing the rising domestic consumer spending, low inflation and improving labour market, allayed fears of the economic recovery losing steam. Additionally, data just out has indicated that trade deficit in the UK narrowed for February. Across the Atlantic, Fed officials continue to confound markets about the timing of interest rate hike and today’s FOMC minutes is expected to shed some light on the same. Meanwhile, the IMF once again warned the Euro zone over the prevalent deflation threat derailing its fragile economic recovery and added that further monetary easing measures will be required to support the region’s economy.

Pound Sterling – UK Markets

The Pound breached the crucial 1.67 mark and moved sharply higher against the US Dollar yesterday following upbeat industrial and manufacturing activity reports for February. Both figures came in above market expectations, thus pointing towards the potential of strong growth for the first quarter of 2014. Additionally, the IMF revised upwards its UK economic growth forecast for 2014 and 2015, further supporting last month’s upbeat assessment of the economy from the UK Chancellor, George Osborne. Furthermore, the NIESR GDP estimate confirmed this notion as the agency expects economic growth to accelerate at its fastest pace in almost four years for the first quarter of 2014. Meanwhile, Sterling is trading in a tight range against its major counterparts this morning. Data just released indicated that domestic total trade deficit narrowed for February. Going forward, markets will keep a close eye on today’s FOMC minutes for further cues to risk appetite. Also, tomorrow’s BoE monetary policy meeting is likely to keep investors interested, however, the central bank is unlikely to alter its monetary policy stance.

US Dollar – US Markets

The US Dollar continued to trade under pressure against the single currency after ECB policymakers earlier this week shrugged off an immediate need for further stimulus, despite lingering risks of deflation in the region. However, the US Dollar has limited further downside against the Euro and is trading in a tight range in today’s trading session. Markets participants will closely monitor today’s FOMC minutes for the March policy meeting for a clearer picture about the central bank’s future plans, especially considering the confusion surrounding the future course of interest rates in the US which was sparked by comments from the Fed Chief after the policy meeting. Besides, the minutes will also offer details about the discussion that led to an alteration to the central bank’s forward guidance target. Meanwhile, the IMF forecast 2014 US economic growth to be unchanged at 2.8%. The agency further added that stronger growth in the US will assist the global economy to combat weaker growth in other developed economies. Upbeat NFIB business confidence data for March released yesterday thus confirmed that recovery was impacted mainly due to harsh weather conditions during the start of the year.

Euro – European Markets

The Euro is range bound against most of its major counterparts this morning. Data released earlier today indicated that trade surplus in Germany unexpectedly narrowed for February, weighed down by a more than anticipated drop in exports, thus pointing that economic growth in the Euro area’s largest economy still continues to remain uneven. Additionally, investors in the Euro-US Dollar will eye today’s minutes of the US Fed’s latest policy meeting for further direction. In yesterday’s trading session, the Euro continued to trade firmer against the US Dollar. Jens Weidmann, the Bundesbank President, echoed similar views that of a few ECB policymakers, indicating that deflationary pressures in the currency bloc are not imminent and added that the current low inflation environment in the Euro area is mainly due to low energy prices and adjustments in periphery countries. Additionally, he indicated that the central bank is ready to take measures, if required, to tackle low inflation levels. Meanwhile, the IMF raised the Euro area’s economic growth forecast for 2014 to 1.2%, though once again urged the ECB to act as soon as possible to fend off deflation threat in the region.

Other Currencies – Highlights

The Aussie Dollar is trading on a firmer footing against the US Dollar in today’s trading session. Data released earlier today indicated that Australian consumer confidence index rose for April, though it remained constrained despite low interest rates and positive news about jobs and the housing market. This has cast some doubts about the pace of recovery in the region. Additionally, the IMF lowered its 2014 economic growth forecast on Australia to 2.7% from a 3.0% growth estimated earlier. However, data indicating a rise in home loans suggests that the housing market recovery is on track, mainly driven by record low interest rates. With no major domestic macro data later today, markets await today’s FOMC minutes ahead of some of important macro data in Australia including tomorrow’s unemployment report and consumer inflation expectations numbers. Additionally, Chinese trade data scheduled tomorrow has the potential to alter risk sentiment.