Euro remains under pressure following cuts in eurozone growth forecasts

Tom Tong27/Mar/2013Currency Updates

GBP

Yesterday sterling continued to weaken against the dollar as Bank of England (BoE) Deputy Governor Paul Tucker warned that UK institutions need to repair themselves as the economy requires sound and well capitalised banks in order to aid the economic recovery.

The extensive bundle of macro data due to be released today is likely to spur volatility in the sterling crosses. The Current Account figures for the last quarter is expected to show £-12.7B from a previous £12.8B. A current account deficit indicates that the flow of capital out the UK exceeds the capital into it, signalling a poor demand of the British currency, and so, a bearish sentiment.
However, the most important data due today is the UK Gross Domestic Product (YoY) (Q4), which is expected to post at 0.3%; the same as the previous quarter. This is the most direct and reliable indicator of growth, and will not only determine the MPC’s accommodative policy maintenance, but also whether or not the BoE are going to tolerate above-target inflation in an effort to stem the risk of a triple-dip recession.
Total Business Investment (YoY) is also expected which should give a hint about short term labour markets trends in the UK.

EUR

The euro had a neutral performance yesterday as no further relevant news from the Cyprus negotiations came out keeping the euro near a four month low against the US dollar.
Although Cypriot Finance Minister Michael Sarris talked down speculation for a euro-area exit, he warned of a deepening recession following the rescue, and said that the bail-in package sets a bad precedent for the monetary union as the capital controls in the sovereign are expected to last for weeks.

Euro-Region Business Climate, Consumer Confidence, Industrial Confidence and Services Sentiment are all due today. All of them are expected to draw not only a negative figure, but even worse than their respective releases. Moreover, Standard and Poor’s cut its growth outlook for the eurozone yesterday, forecasting the growth rate to contract 0.5% in 2013, versus an initial forecast for a 0.1% decline. This reflects the deepening recession in the region and may put increased pressure on the ECB to push the benchmark interest rate even lower in the short term.

USD

Yesterday the dollar Index increased slightly after a good spate of macro data releases. US Durable Goods Orders in February printed at 5.7%, almost doubling its consensus of 3.8% , while Consumer Confidence for March printed 59.7 from the 68.0 expected. Finally, there was a marginal slide in New Home Sales to 0.41 from an expected 0.42B. Despite the slide, the figures show solid consolidation of the recovery in the US housing market. The only important macroeconomic data out of the US today is the Pending Home Sales Index.

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Written by Tom Tong

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