Tensions in Ukraine Escalate

In the wake of a relatively light global economic calendar today, currency markets are expected to track the latest updates from the Eastern European crisis. With the US and the EU inclined to impose further sanctions on Russia amid rising political tensions, any further development on this front has the potential to alter risk sentiment in the session ahead. On the macro front, a barrage of crucial economic data at home and globally this week, especially the UK and the US first quarter GDP reports, will provide evidence about the strength of economic recovery in these nations. Further, the Fed monetary policy meeting and the Euro zone inflation numbers will determine investors’ risk appetite in the week ahead.

Pound Sterling – UK Markets

The Pound advanced against its major counterparts in Friday’s trading session after data indicated that domestic annual retail sales rose for March, though less than market expectations. However, mortgage approvals for house purchases in the UK declined for the second consecutive month for March to its lowest level in four months, thus indicating that the UK housing market recovery might have taken a breather. Meanwhile, the Pound failed to hold onto its gains against the US Dollar in the latter half of the session following upbeat US consumer confidence report and as the overall market sentiment remained subdued due to continued unrest in Eastern Europe. Sterling is trading on a firmer footing against the majors in today’s trading session. Investors will keep a close watch on today’s US pending home sales and Dallas region manufacturing report for further direction to risk appetite. Against the backdrop of mostly positive macroeconomic data at home lately, most of market attention is focused on tomorrow’s domestic GDP numbers which is likely to show a faster pace of expansion during the first quarter of 2014.

US Dollar – US Markets

The greenback began today’s session on a weaker footing, as traders await a raft of important economic releases from the US during the course of the week. Furthermore, the Fed is likely taper its asset purchases by another $10 billion in this week’s monetary policy meeting, thereby suggesting that the central bank remains inclined to abandon its asset purchases by the end of 2014. Meanwhile, in the advent of further escalation in tensions between Ukraine and Russia, the greenback continues to lose ground against other safe haven currencies. The US Dollar ended weaker against the Euro on Friday, despite data showing that consumer confidence in the world’s largest economy climbed to a nine month high for April. With the latest set of housing data showing signs of weakness, today’s pending home sales figures will offer an encompassing view about the trend in the US housing sector. However, today’s economic releases are unlikely to bring about a dramatic shift in the overall direction, as market participants are likely to stay watchful of the upcoming economic releases from the US, which includes GDP and non-farm payroll figures.

Euro – European Markets

The simmering concerns in Eastern Europe remains a key determinant of the trend in currency markets. Although geopolitical risks emanating from Eastern Europe pose serious challenges to the common currency bloc, the Euro continued to post modest gains against the US Dollar in today’s trading session, as the recent set of economic releases exude confidence that the region’s economic recovery is gathering momentum. However, the recent rally in the single currency appears to have ruffled a few feathers in the ECB, given its broader implications on prices in the Euro zone. With the Euro zone economy staring at the prospect of sliding into a deflationary environment, there is a growing belief that the ECB would adopt unconventional measures to guard against the threat of deflation. Against this backdrop, the German and Euro zone consumer price inflation data due this week is likely to have a considerable influence on determining the trend in the Euro going forward. With no major economic releases scheduled today, traders are likely to position themselves for crucial events lined up for the week from both sides of the Atlantic.

Other Currencies – Highlights

The Swiss Franc has strengthened against its major counterparts in today’s trading session. The currency has moved higher against most of its major peers over the past few weeks as escalating tensions in Eastern Europe underpinned the safe haven demand of the Swiss Franc. Meanwhile, the Swiss National Bank President, Thomas Jordan, indicated that the Swiss Franc’s safe haven status has kept the currency highly valued and added that the SNB will continue to persist with its ceiling on the Swiss Franc against the Euro and will take additional measures if necessary to ward-off the threat of deflation in the nation. With no domestic economic data on tap today, investors in the Swiss Franc will eye macroeconomic reports in the US for further direction. Additionally, events unfolding in Ukraine will prove crucial for the trading sentiment in the Swiss Franc today. Moving forward, the domestic UBS consumption indicator, the KOF leading indicator and the manufacturing PMI scheduled this week, along with a slew of crucial global macro releases, will keep investors in the Swiss Franc interested.