UK Retail Sales Surprise

The just out domestic retail sales data has once again confirmed that the UK economic recovery remains on track, although mortgage approvals unexpectedly fell for March. Against the backdrop of the largely upbeat domestic macro data of late, next week’s first quarter UK GDP report will be closely watched by investors. An upbeat GDP print might compel the BoE to re-think over persisting with its current loose monetary policy stance. Across the Atlantic, today’s final consumer sentiment numbers will attract considerable market attention. In the Euro zone, next week’s German and Euro zone inflation reports are likely to hog the limelight, especially in the wake of the ECB President stressing on the importance of April inflation numbers for future policy stance.

Pound Sterling – UK Markets

Sterling has moved marginally higher against its major counterparts in today’s trading session after data just released indicated that retail sales in the UK climbed for March. While retail sales offered a positive surprise to markets, data from the BBA showed an unexpected slowdown in loan approvals for home purchases for March. Going forward, first quarter GDP numbers, along with consumer confidence, manufacturing and construction sector reports for April will be in focus next week for further insights into the pace of economic recovery. The Pound was pretty volatile against the majors yesterday following mixed set of macroeconomic reports released in the US, wherein orders for durable goods rose unexpectedly for March and initial jobless claims increased more than anticipated last week. However, investors’ sentiment in Sterling remained susceptible as the BoE minutes released earlier this week showed that policymakers remain uncertain over the amount of slack remaining in the economy and held differing views on the medium term inflation outlook, thereby limiting its gains against the US Dollar.

US Dollar – US Markets

The US Dollar failed to gain traction against most of its major peers yesterday, despite durable goods orders indicating a more than expected rise for March. The upbeat durable goods orders report has strengthened views that the US economy is recovering following weakness seen in the initial months of 2014 due to harsh weather conditions. However, a separate report indicated that the number of people claiming jobless benefits rose more than anticipated last week and Kansas City manufacturing activity moderately slowed for April after rising to a two-year high for March. In the wake of mixed regional manufacturing reports from the US lately, next week’s ISM manufacturing data is unlikely to show a significant improvement for April. In today’s trading session, the greenback is range bound against the Euro as “risk off” sentiment prevailed in the pair amid renewed signs of violence in Eastern Europe between Ukrainian forces and pro-Russian separatists. Going forward, investors will keep a tab on today’s Reuters/Michigan consumer sentiment index. In the forthcoming week, along with the manufacturing sector data, investors will keep a close watch on a raft of crucial domestic macroeconomic releases for further direction.

Euro – European Markets

In the aftermath of upbeat German PMI figures, data released yesterday indicated that German Ifo business climate and expectations indices rose unexpectedly for April, thereby suggesting that the Euro zone’s largest economy remains resilient to external shocks. However, gains were capped after Mario Draghi, the ECB President, reiterated that the central bank is open to asset purchases in order to overcome the prolonged period of low inflation plaguing the currency bloc. Against this backdrop, consumer price inflation figures from Euro zone economies next week will provide guidance over the stance that the ECB might adopt in the future. Meanwhile, the Euro is trading in a tight range against its major counterparts this morning, with the upside limited due to escalating tensions in Ukraine. With no major domestic macro reports today, the Euro-US Dollar investors will keep a close watch on the FOMC meeting and economic releases from both sides of the Atlantic next week for further direction. Apart from inflation numbers in Europe, German retail sales and the Euro area and German unemployment figures are among the key economic releases that will be closely watched by investors.

Other Currencies – Highlights

The Japanese Yen has recouped most of its early session losses and is trading in a tight range against its major counterparts this morning. Data released overnight showed that consumer price inflation in Japan for March rose to the highest level since 1992, steadily inching towards the Bank of Japan’s 2% target. The accelerating trend in inflation for March can be attributed to the 3% hike in consumption-tax which came into effect earlier this month and the central bank’s monetary stimulus measures. However, amid fears that the sales tax hike might negatively impact consumer demand in the coming months, the BoJ policy meeting next week will be keenly eyed by market participants to ascertain if the central bank resorts to further loosening. With no more domestic economic data scheduled for release today, investors in the Japanese Yen will keep a tab on the US consumer sentiment index report for further direction. Apart from the BoJ meeting, a raft of crucial domestic macro releases next week will prove crucial for the Japanese Yen against the majors.