Sterling Investors on the Edge

With little on the domestic macro front today, Sterling investors continue to remain on the sidelines ahead of tomorrow’s domestic labour market data and the BoE quarterly Inflation report. While the BoE is unlikely to offer major insights into its future policy stance, it remains to be seen if the central bank addresses mounting concerns about a potential housing bubble in the UK. Meanwhile, an upgrade to the UK economic growth forecast tomorrow remains on the cards. In Europe, today’s German ZEW report revealed deteriorating confidence among investors in the wake of persistent tensions in Ukraine. Across the Atlantic, retail sales data will be closely watched to determine the pace of recovery during the start of the second quarter.

Pound Sterling – UK Markets

The Pound is trading marginally lower against both the Euro and the US Dollar in today’s trading session. With no major decisive triggers at home today, tomorrow’s labour market report will keep Sterling investors on their toes, especially after last month’s unexpected decline in the unemployment rate below the central bank’s previous target. Also, the BoE quarterly inflation report will be eyed as the central bank is likely to indicate that it might act soon to tackle spiralling house prices in the UK. Even as the domestic economic recovery is gaining momentum recently, low inflation and the prevalent slack in the labour market has provided little incentive to the BoE to rush into raising the current record low interest rates. With little on the economic docket across the globe yesterday, Sterling continued to trade on a firmer footing against the common currency as last week’s dovish comments from the ECB Chief, Mario Draghi continued to weigh on the Euro. Additionally, BRC retail sales and Lloyds employment confidence data surpassed market estimates, further strengthening market perception of an improving domestic economy.

US Dollar – US Markets

Data released yesterday indicated that the US Federal budget recorded a surplus of $107 billion in April, helped by higher tax receipts from both individuals and corporations which boosted the overall revenue. Although the budget surplus in April, a month which sees a spate of tax payments from individuals and corporations, was lower than market expectations, it confirmed that the US budget deficit narrowed sharply for the seven months period from October 2013 through April 2014, as compared to the same period last year. Despite signs of an improvement in the US fiscal position, the greenback continued to trade in a tight range against the Euro, as traders awaited fresh cues for further direction. In today’s trading session, the US Dollar is trading marginally lower against the Euro ahead of US retail sales data due later today which is expected to show that growth slowed for April, although it rose for the third consecutive month. However, the NIFB small business optimism index is likely to support the current notion that the US economy continues to recover at a steady pace during the second quarter of 2014. Separately, data released earlier today in China continued to reinforce fears about a potential economic slowdown in the nation.

Euro – European Markets

The single currency continued to trade in a tight range against the US Dollar in yesterday’s trading session. Investors remained cautious after pro-Russian separatists claimed victory in a referendum held over the weekend on self-rule in two regions of eastern Ukraine, thereby raising fears of further political instability in the nation. Meanwhile, both the ECB governing council members, Vitor Constancio and Ewald Nowotny, stated that it was too early to speculate over the central bank’s actions in the next policy meeting, thereby leaving the door wide open over the possible stance that the ECB might adopt in its June policy meeting. Meanwhile, the common currency has moved higher from its yesterday’s lows against most of its major counterparts this morning. Today’s German ZEW sentiment report will be keenly eyed which is expected to show that investors’ confidence in the economy deteriorated further in May. Also, today’s US retail sales report for April will be eyed to gauge the pace of recovery in the world’s largest economy during the second quarter of 2014.

Other Currencies – Highlights

The Aussie Dollar is trading on a weaker footing against the US Dollar this morning as housing data released earlier today indicated that domestic house prices grew at a slower than expected pace during the first quarter of 2014. The figures suggested that the housing market might be losing some steam which was seen last year but raised hopes of a sustained housing market recovery in Australia. Additionally, the recent dismal Chinese macro data, including today’s weak industrial production and retail sales numbers, have raised concerns about the health of the world’s second largest economy. Going forward, most of the Aussie Dollar investors’ attention will be focused on Australia’s 2015 budget wherein the government expects to narrow its deficit by announcing a reduction in family-welfare payments, cuts to government services and asset sales. Any volatility in the Australian Dollar arising from the budget speech in today’s trading session cannot be ruled out.