Daily Forex Analysis by Finexo.com 07/04/2010

Past Events

• USD FOMC Meeting Minutes
• EUR Sentix Consumer Confidence, out at 2.5 versus expected -5.9, prior -7.5
• GBP Construction PMI, out at 53.1 versus expected 48.8, prior 48.5
• AUD Cash Rate, out at 4.25% as expected, prior 4.0%

Upcoming Events

• GBP Manufacturing Production m/m (0830 GMT)
• GBP Asset Purchase Facility (1100 GMT)
• GBP Monetary Policy Committee Rate Statement (Tentative)
• GBP Official Bank Rate (1100 GMT)
• EUR Minimum Bid Rate (1145 GMT)
• EUR ECB Press Conference (1230 GMT)
• USD Unemployment Claims (1230 GMT)

Market Commentary

In the US the minutes of the March Federal Open Market Committee were released yesterday in Washington. Federal Reserve officials saw signs of a strengthening recovery that could be hobbled by high unemployment and tight credit and some warned of raising rates too soon.

“While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth,” minutes of the March 16 FOMC meeting showed.

Fed officials are looking for signs of self-sustaining growth before they begin their exit from the most aggressive monetary policy in U.S. history. Payrolls rose by 162,000 last month, the most in three years and manufacturing grew at the fastest pace in more than five years. However last month’s increase in payrolls, the third in the past five months, wasn’t enough to push down the jobless rate. The economy has lost more than 8 million jobs since the recession began in December 2007 and the unemployment rate is 9.7%.

Euro Zone investor confidence unexpectedly moved to a positive territory in April, results of a key survey showed yesterday. A measure for Euro area investor sentiment rose to 2.52 in April from – 7.48 in March, the Sentix research group said. That was the first positive figure since June 2008. Economists had predicted a reading of -5.9.

The Euro slid on markets early yesterday after a news report claimed Greece wanted to bypass International Monetary Fund involvement in a rescue. The nation’s Finance Minister George Papaconstantinou quickly responded to the report and said his government has not tried to modify the terms of the package to exclude the IMF. He said that the EU aid plan was “important” for Greece and Europe, and the nation has not sought to activate the aid plan.

However the Euro closed the day down against the US Dollar at EUR 1.3363. Against the Pound the Euro dropped 0.46% to close at GBP 0.8773.

The European minimum bid rate is due to be published tomorrow at 11:45 GMT. Jean-Claude Trichet isn’t predicted to move the rate from 1%. Trichet’s words in the ECB press conference will probably shake the Euro – likely topics include the Greece agreement and the future of the European economies.

In the UK the construction sector expanded in March for the first time in more than two years, led by a sharp rise in new orders in the housing and commercial sectors. The Chartered Institute of Purchasing and Supply/Markit construction PMI index jumped to 53.1 last month from 48.5 in February – the first reading above the 50 level that divides growth from contraction since February 2008.

Incoming new orders increased during March for the first time in four months and only the second time in the past two years. However, construction firms continued to shed jobs in March and concern over cutbacks in government spending meant they were less optimistic than in February.
“Though it’s great to see the UK construction sector turn the corner after two years of relentless contraction, it’s still very early days,” said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply. “The recession hit construction the hardest and because the industry is operating from such a low base, this upturn may be short-lived.”

Of the three subsectors, house-building showed the strongest rise in activity, expanding for a seventh consecutive month. Commercial activity reported growth for the first time since February 2008. The civil engineering sub-sector, which is typically more reliant on public spending, contracted. Construction accounts for around 6% of Britain’s economic output. In the first quarter as a whole, British construction activity was broadly unchanged, suggesting the sector is no longer acting as a drag on GDP.

Early tomorrow the UK manufacturing production PMI will be released. This indicator dropped by 0.9% last month, the first drop in five months, hurting the Pound. A correction is predicted this time – a rise of 0.7%. Note that manufacturing is 80% of industrial production which is published at the same time, that figure is expected to rise by 0.5%.

This week’s major announcement for the Pound is the rate decision; the announcement will be made tomorrow at 11.45 GMT. The rate is expected to remain unchanged at 0.5%. The Asset Purchase Facility is also expected to remain unchanged.

Against the US Dollar yesterday the Pound gained 0.18% to close trading at GBP 1.5241.

American unemployment claims will also be published tomorrow at 12:30 GMT. Yet another drop in the weekly jobless claims is due. After reaching 439K last week, they’re predicted to drop to 432K, supporting more job gains in the next Non Farm Payrolls.

Finally yesterday Australia’s central bank raised its benchmark interest rate to 4.25% and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending. Governor Glenn Stevens boosted the overnight cash rate target from 4%, the Reserve Bank of Australia said in a statement in Sydney yesterday. The Aussie gained 0.74% against the US Dollar following the announcement, jumping from AUD 0.9207 to AUD 0.9276.

Stevens was the first G-20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last month that the world’s biggest economy “continues to require the support of accommodative monetary policies.” The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank’s rate is at a record low of 1%.

Written by Finexo.com