UK Economy Expands Less than Expected

The just out first quarter UK GDP report has come marginally below market expectations. However, the economy has continued to build on to its last year’s gains, thereby justifying upward revisions to 2014 growth rate by the IMF and the BoE recently. Against this backdrop, it remains to be seen how long the BoE would resist from raising interest rates in the future. In the US, today’s consumer sentiment numbers will attract market attention, although markets are eagerly awaiting the outcome of the Fed’s monetary policy meeting tomorrow. In the Euro zone, among the key macro data today, the German inflation report will undoubtedly gain maximum market interest.

Pound Sterling – UK Markets

The Pound has weakened against its major counterparts this morning after data just out indicated that the UK economy grew less than expected during the first quarter of 2014. However, the UK economy grew at a faster pace compared to the previous quarter, suggesting that the British economy continued to gain momentum following largely upbeat macroeconomic data. This is likely to put the Bank of England in a tricky position on whether to raise interest rates soon. Going forward, markets will keep a tab on domestic and US consumer confidence reports later today for further direction to risk appetite. Additionally, domestic manufacturing and construction data for April scheduled later in the week will be keenly eyed for further insights into the trend of recovery during the second quarter of 2014. Also, data from the US, especially tomorrow’s US Fed monetary policy decision, will keep Pound-US Dollar investors on their toes. Sterling advanced against the US Dollar in the initial trading session yesterday. However, the Pound pared most of its gains in the latter half of the session following the release of optimistic US pending home sales and Dallas region manufacturing reports.

US Dollar – US Markets

The US Dollar was under pressure against most of its major counterparts yesterday, despite positive housing and regional manufacturing sector reports released in the US. Data indicated that contracts to buy previously owned homes in the US, which is seen as a leading indicator, rose for the first time in nine months for March, thereby possibly hinting that the current slack in the housing sector could reverse in the near future. Furthermore, the Dallas region manufacturing activity continued its growth for the twelfth straight month for April. However, in the aftermath of the recent escalation in geopolitical tensions in Eastern Europe, the US imposed fresh sanctions on Russia, thereby suggesting that the global political atmosphere remains strained. Meanwhile, the greenback is trading in a tight range, albeit on a weaker footing against the Euro this morning. Going forward, market participants await today’s domestic consumer confidence which is likely to show a marginal improvement for April. Also, the Euro-US Dollar investors will keep a close tab on today’s German inflation numbers, while the two-day FOMC meeting beginning today could possibly alter market sentiment in the upcoming trading sessions.

Euro – European Markets

The Euro advanced against the US Dollar yesterday as expectations for additional stimulus waned after reports indicated that the ECB President, Mario Draghi, notified German lawmakers that the central bank is still a long way off from unveiling a quantitative easing programme even in the wake of persistent low inflation prevalent in the region. Additionally, the ECB Governing Council member, Christian Noyer, indicated that while the strong Euro continued to weigh on inflation in the region, the currency bloc is not at risk of falling into deflation. Against this backdrop, today’s German and tomorrow’s Euro zone inflation numbers for April will attract maximum market attention. Separately, the EU agreed to impose sanctions on 15 more Russian and Ukrainian individuals. Meanwhile, the Euro is range bound against most of its major peers this morning. A survey released earlier today indicated that German consumer confidence remain unchanged near its highest level in more than seven years for May. This is likely to keep the Euro supported unless German inflation numbers due later in the day surprise market participants on the downside.

Other Currencies – Highlights

Trade surplus in New Zealand widened for March after Chinese demand for dairy products continued to rise, thus driving monthly and annual export receipts to new records. Despite upbeat trade balance figures, the New Zealand Dollar continued its downtrend and traded near its three and a half week lows against the US Dollar this morning. The decline in the currency began yesterday after encouraging housing and regional manufacturing sector data in the US indicated that economic recovery in the US continues to gain momentum. With no major domestic data today, investors are likely to keep a tab on domestic business confidence and Chinese manufacturing figures due later this week. However, most of market sentiment will be driven by the US Fed monetary policy decision tomorrow and non-farm payrolls report scheduled later in the week.