Risk assets sell-off following Chinese economic slowdown, ahead of swathe of macroeconomic data today

Tom Tong16/Apr/2013Currency Updates

GBP

The pound continued to drop against the dollar in the first session of the week , but it traded sideways against the euro. The pound’s performance this week will be dictated by the outcome of the BoE Minutes tomorrow.

Today we are expecting the UK Consumer inflation figure to advance to 2.8% in March (YoY), around the same number as its previous release. GBP/USD could trade higher ahead of the Bank of England Minutes tomorrow, as policy makers could be seen to give a more hawkish statement concerned with rising inflation in the UK, which currently stands almost one percent above its target. However, having said this, we expect the MPC to introduce further quantitative easing in May in an attempt to boost the ailing economy. Meanwhile, the Producer Price Index – Output (YoY) March is expected to print at 2.0% from its previous 2.3%.

EUR

The euro depreciated harshly yesterday as Cyprus looks to sell EUR 400M of its excess gold reserves to draw up the EUR 7.0B contribution needed to obtain the EUR 10.0B bailout. The single currency may fail to maintain the narrow range carried over from the previous week as volatility increases due to the numerous macro data figures released today.

Despite the ongoing turmoil in Cyprus, the German Finance Ministry said ‘there is no additional financial requirement’ for the peripheral nation, and made an attempt to talk down the threat of a euro-area exit as the governments operating under the single currency struggle to meet on common ground.

The big bundle of macro data released today in Europe has a common denominator: all of them are expected to be worse than previous months, possibly forcing the euro into a further decline. ZEW Survey – Economic Sentiment is released this morning, as well as the Consumer Price Index (YoY) of March, which is expected to drop 0.1%, signalling the unhealthy situation of the European economy.

The downbeat expectations have even affected Germany, which will release the ZEW Surveys of April – Economic Sentiment and Current Situation, but the most volatile trading will be during ECB President Draghi’s Speech, who might give a hint of the likelihood of a cut in interest rates to historic low levels at 0.5%.

USD

The greenback pared the decline from the previous week and the U.S. Dollar Index climbed after disappointing GDP in China spurred demand for safe haven assets, and the greenback may continue to retrace the decline from earlier this month as the fundamental outlook for the world’s largest economy is gradually gathering pace.

In the US today we have the Consumer Price Index (YoY) for March which is expected to drop 0.3%, Housing Starts (MoM) could increase slightly from its previous 0.917M which, combining with a better than expected Building Permits, may confirm an upward trend in the American real estate sector.

Special attention deserved for the Industrial Production (MoM) of March, which is expected to decline from its previous month, and may incur in a longer maintenance of the QE3.

Print

Written by Tom Tong

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