Forex Trading

The British Pound may see significant selling pressure in European hours with advanced estimates of first-quarter Gross Domestic Product set to show that the economy shrank -1.6% to bring the annual pace of decline to a whopping -3.8%, the worst result in nearly 28 years. Sterling slipped below 1.47 in overnight trading to shed as much as -0.6% against the US Dollar.

Key Overnight Developments

• US Dollar Looks Past Asian Stock Performance, Eyes G7 Summit
• Daily Telegraph Reports Moody’s May Cut UK’s AAA Credit Rating
• Euro Range-Bound, British Pound Lower in Overnight Trading

Critical Levels



Japan’s All-Industry Activity Index reversed lower to print at -2.0% in February after improving in the preceding month. The Industrial Production component led declines, falling -1.77% as weak overseas demand amid deepening global recession continues to push manufacturers to cut back output. The Corporate Service Price Index fell at a slower pace than economists expected, shrinking -2.1% in the year to March versus forecasts of a -2.6% result.

While still unsubstantiated by the principals, the Daily Telegraph reported that Moody’s may cut the UK’s sovereign credit rating from its current AAA on concerns about the booming government deficit. Standard and Poor’s, another rating agency, has already lowered the ratings of Spain, Ireland, and Greece.

On balance, major currencies kept near familiar levels through the overnight session in anticipation of the upcoming meeting of G7 finance ministers in Washington, DC. Deflation, unemployment and toxic bank assets remain pressing concerns despite recent optimism and the markets will be looking for assurances that policymakers are prepared to offer more stimulus to support economic expansion in the months ahead. The forthcoming event risk seemed to eclipse a down day across major Asian stock exchanges, with the safe-haven US Dollar oscillating in a well-defined 0.3% range.

Euro Session: What to Expect



Germany’s IFO Survey of business confidence is expected to print at 82.3 in April, a reading within a hair the previous month’s record low at 82.1. The forward-looking Expectations component of the survey is seen rising for the fourth consecutive month, hinting at improvement in firms’ 6-month outlook. Still, the reading is expected at 82.6, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a gentler pace. Indeed, a survey of economists conducted by Bloomberg forecast the Euro Zone’s largest market will continue to see deep contraction for the remainder of this year, with a return to positive growth delayed until the first quarter of 2010. Most notably, the economic recovery in the US is expected to outpace that of Europe, suggesting Federal Reserve will lead the ECB in raising interest rates, thereby putting downward pressure on the EURUSD exchange rate.

In the UK, advanced estimates of first-quarter Gross Domestic Product are set to show that the economy shrank -1.6% to bring the annual pace of decline to a whopping -3.8%, the worst result in nearly 28 years. NIESR, a think tank, has said the economy could “continue to decline for up to another year” while the International Monetary Fund revised down their UK economic growth projections by -1.3%, calling for the economy to shed -4.1% through 2009. Signs of deepening recession weighed heavily on the British Pound earlier this week as the unemployment rate rose the highest in over a decade, pushing the currency’s average value down -1.5% against major counterparts. If this pattern is to continue, sterling could see heavy selling in the coming session. A separate report is likely to show that Retail Sales grew 1.1% in the year to March, a notable improvement from the previous month’s 0.4% result. Still, the metric has been trending firmly downward since May of last year and the expected upswing will hardly amount to a break from that trajectory. Looking ahead, the aforementioned weakness in the labor market is likely to maintain downward pressure on disposable incomes, discouraging spending.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Economy to Shrink Most in 28 Years (Euro Open)