Currency news: The GBP/USD recovered slightly

Britain’s currency, also affected as by news of the Spanish downgrade, tumbled to a low of $1.51240 yesterday. The GBP/USD recovered slightly to close at $1.52443, down 0.29% from its opening price. This morning, a report by the Nationwide Building Society showed that housing prices in U.K rose by 1.0% in April from March. According to Nationwide data, this marks the second consecutive monthly rise of 1.0% rise, leaves house prices up by 10.5% on an annual basis.

In the United States, the Federal Reserve said yesterday that the U.S economy continues to strengthen, but that the “slack” left over from the recession was still so large that it expected interest rates to stay near zero for an “extended period”.

The labor market is beginning to improve,” the Federal Open Market Committee said in a statement yesterday in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.” Federal Reserve Chairman Ben S. Bernanke is contending with an unemployment rate that has been stuck at 9.7% for three straight months even as payrolls started to grow. Fed officials repeated that inflation is likely to be “subdued” and that consumer spending is held back by tight credit and weak income growth.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, was at 82.254 from 82.381 yesterday, when it rose to 82.714, the strongest since May 2009. The Dollar Index neared an 11-month high before a U.S. Labor Department report today (1330GMT) that Forex analysts said will show initial jobless applications dropped by 11,000 to 442,000.

Forex currencies' news from around the globe

The US will release the CB Consumer Confidence, a survey of 5,000 households which asks respondents to rate the relative level of current and future economic conditions including labor availability, business conditions, and overall economic situation. After slipping in February, the index recovered in March to reach 52.5 points. It’s now expected to take one step higher and rise to 54.2 points.

Later today, Federal Chairman Ben S. Bernanke will testify before the National Commission on Fiscal Responsibility and Reform. His speech will be closely watched as it comes one day before the Fed’s rate decision announcement.

In Canada, Mark Carney, governor of the BOC, will testify to parliament this week in two sessions. The first of which is this afternoon (2030GMT). Over the course of the past week, the Canadian dollar has dipped several times below the parity line with its US counterpart, and speculations continue to increase that the BOC will opt for a rate hike as early as June 1st.

Carney will make an overview of the economic situation, and may give some more hints about the imminent rate decision. The big question is if it will come as soon as June 1st, or on the next meeting scheduled for July 20th.

The Canadian Dollar continues to flutter around the parity line with the US Dollar. The USD/CAD Forex pair hit 1.00215 during afternoon European trade, the daily high, but by then end of the day the Loonie managed to erase these losses and closed at 1.00033.

Down under in Australia, The Producer Price Index grew 1% on the first quarter 2010 compared to the Q4 2009 against forecast that expected an increase of 0.6. Australian business confidence and conditions weakened slightly in the first quarter of 2010 as stronger employment growth was more than offset by an easing in retail sales, according to the National Australia Bank's quarterly business survey issued early this morning.

Business confidence fell to an index reading of plus 17 points in the first quarter, down 1 point from the fourth quarter. Despite the small drop, confidence stayed positive among all sectors of the economy, with the mining sector the strongest of all, NAB said. Meanwhile, business conditions fell to an index reading of plus 8 points, down 1 point from the prior quarter. Despite the overall strength of activity across the economy, there is little evidence of an inflationary build-up, according to the survey.

After closing at 0.92771USD yesterday, the Aussie fell this morning, hitting a low of 0.92344USD. Analysts expect the Australian Dollar to reach parity with the U.S Dollar by mid 2010.

UK Market News: The British economy still struggles to improve

The U.K economy grew half as much as expected in the first quarter of this year, highlighting that Britain still continues to struggle with its recovery.

Britain's Prelim GDP report showed a 0.2% increase from the last quarter of 2009, when a 0.4% expansion pushed Britain out of the recession.

The pound tumbled 0.4% to $1.5318 following the report, from $1.5397. The British Forex currency managed to recovery against its U.S counterpart, to close the week at $1.53749, up 0.05% from the day’s opening price. The EUR/USD closed at 0.87027, down 0.82% from the day’s opening price of 0.86318.

The US dollar advanced for the first time in three weeks against the Japanese Yen on evidence of a global economic recovery including a surge in the U.S. housing market before next week’s Federal Reserve policy meeting. After hitting a high of 94.306, the USD/JPY closed the week at 93.957.

On Friday, the US Census Bureau reported that New-Home sales jumped 27% in March, the most since April 1963. A soon-to-expire tax break combined with low mortgage rates and favorable weather sent new home sales flying past market expectations 326K, to hit 411K.

However, the department of Commerce reported on Friday, that the demand for U.S.-made durable goods dropped for the first time in four months as orders for new aircraft plunged 67%. Orders for durable goods fell 1.3% in March to a seasonally adjusted $176.7 billion after a 1.1% gain in February. However, excluding transportation goods, the core rate showed a rise of 2.8% to $136.5 billion in March, the fastest increase since the recession began in December 2007.

Canada: wholesale sales unexpectedly declined in February

Yesterday in Canada brought news that wholesale sales unexpectedly declined in February, the first drop in four months, led by automobiles and machinery. Sales declined 1.2% to C$43.8 billion (US$43.7 billion) according to figures released by Statistics Canada. Economists had expected a 1% increase.

Four of the seven wholesale categories recorded decreases in February. Motor vehicle sales fell 5.3%, the first decline since August. Machinery, equipment and supplies sales fell 2.8% while personal and household goods sales fell 1.5%.

Wholesale sales have gained 8.5% over the last year as companies sold goods out of their inventories to meet rising demand. The Bank of Canada said on Tuesday that it will begin raising interest rates to keep inflation in check as the economic rebound has been faster than expected.

Wholesale inventories rose 0.1% in February, the first increase since November 2008. The ratio of wholesale inventories-to-sales rose to 1.17 from 1.15, the first increase since August.

The agency began using a new sample of wholesalers in yesterday’s report and made other revisions to its data. Using the revised data the agency said January's wholesale sales rose 2.4%. Last month it had said wholesale sales rose 3%, the fastest in three years.

The Canadian dollar closed the day still above parity with the US dollar after hitting a low of CAD 1.00119 during Forex, it closed the day down 0.10% on yesterdays close at CAD 0.99895.

Euro Delight!

In the Euro zone German investor confidence jumped in April as falling unemployment and a weaker Euro improved the economic outlook.

The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations rose to 53 from 44.5 in March. It was the first increase in seven months. Economists had predicted a gain to 45.1.

Germany’s share index has risen 3% in the past month as economic growth, which stalled during the coldest winter in 14 years, resumed. That’s outweighing concern about Greece’s fiscal crisis, which has failed to recede even after European finance ministers and the International Monetary Fund agreed on a 45 billion Euro ($61 billion) aid package for the cash-strapped nation.

The all-European figure also rose unexpectedly – it surged from 37.9 to 46 points. A figure of 38.9 was expected. The German figure is considered more accurate, however this data contributed to yesterday's rise by the Euro.

The single currency gained on the US Dollar for the second day, it appreciated 0.37% to close at EUR 1.34353.

The Canadian Dollar fell back against Dollar Sharply

In Canada manufacturing sales edged up by a weaker than expected 0.1% in February from January as weakness in the energy and auto sectors partially offset gains across a dozen industries, Statistics Canada said on Friday. Statscan also revised down its January sales growth figure to 1.8% from the 2.4% initially published.

Following the report the Canadian Dollar fell back to close down 1.06% against its American counterpart at CAD 1.01271.

The disappointing numbers suggest the economy grew at a slower pace in February than in the preceding five months. Still, analysts expect first-quarter growth to come in just as strong as the fourth quarter, at about 5% annualized. That will keep pressure on the Bank of Canada to raise interest rates either in June or July.

"We expect that, with evidence mounting that the economic recovery in Canada is on increasingly solid footing, the Bank of Canada will look to begin tightening monetary policy," Nathan Janzen, economist at Royal Bank of Canada, wrote in a note to clients.

"However, economic slack built up during the recent recession is expected to keep inflation subdued in the near term, allowing the pace of tightening to be undertaken at a gradual rate," he said.

The majority of primary dealers in Canada expect the first rate rise in July, but forex trading markets have also priced in a hike as early as June 1st.

February sales were strong in plastic and rubber products as well as in chemical products, partly the result of pharmaceutical and medical aid to Haiti following the recent earthquake. Much of the weakness came from a 3.9% drop in sales by the petroleum and coal products industry due to lower oil prices and slowdowns caused by fires at two refineries. Transportation equipment sales fell 1.8%, the second straight monthly decline as a result of temporary auto factory shutdowns and lower parts and aerospace sales.

Bond Market failed to make an Impact!

The Greek government bonds dropped as some of the world’s biggest investors said the European Union’s €45 billion bailout plan for the debt stricken nation failed to make the securities attractive.

The declines pushed the yield on the two-year note up for a second day after Pacific Investment Management Co., which runs the world’s biggest bond fund, said it’s too early to buy Greek debt and BlackRock Inc. said EU states planning to participate in a bailout must show they can withstand a “backlash” from their citizens. Moreover, Portuguese bonds declined after the EU said the government needs to do more to tackle its budget deficit. “The aid package is a safety net, but it doesn’t change the fiscal situation in Greece,” said Luca Jellinek, a senior interest-rate strategist at ANZ Banking Group Ltd. in London. “Yields are not going to fall straight away. They need to show they are successfully cutting the deficit.”

Yesterday, the Eurostat released Europe’s Industrial Production for February. While forex trading markets had expected a slight increase of 0.2%, the report showed a sharp increase of 0.9% in industrial production between February and March – indicating that the EU’s recovery in the manufacturing sector remains firmly on track.

Later today, the ECB will publish its monthly bulletin. Released one week after the central bank’s rate interest decision, this report exposes the figures that the ECB used to make its rate decision – generally the report includes hints about future policies.

Continued Good News for Canada!

Canada posted its fifth straight trade surplus in February, the longest series of reported surpluses since November 2008, adding to yet piece of evidence supporting a growing economic recovery.

Yesterday Canada’s balance of goods beat market expectations as Stats Canada reported a monthly trade surplus of C$1.40 billion ($1.39 billion), the largest surplus since October 2008. Despite a rising Canadian Dollar, exports increased 2.8% in February to C$34, led by a 7.2% gain in industrial goods and automatic products. Imports rose 0.9% to C$32.6 billion. However, despite this positive news, the Loonie was little changed at C$1.0033 per U.S. dollar following the report.

The recovery of the northern nation’s trade surplus, comes after numerous reports this year that have shown steady gains in housing and wholesale sales along with a drop in the unemployment rate.

The BOC has reportedly stated that both output and a key measure of inflation have been higher than expected, leading many economists to believe that the central bank will being raising the benchmark interest rate from 0.25% in the third quarter – well ahead of the U.S Fed.

Market Comments: Budget deficitforecast to reach a record $1.6 trillion this fiscal year

Yesterday, the U.S posted a budget deficit for a record 18th straight month in March, reflecting gains in government spending to bolster the economy. The excess of spending over revenue declined to $65.4 billion last month, compared with the $220.9 billion reported last month, according to Treasury Department figures released yesterday in Washington.

A deficit that’s forecast to reach a record $1.6 trillion this fiscal year illustrates the challenges facing President Barack Obama and Congress as they struggle to stimulate the recovery while keeping the budget gap manageable. Deterioration in the government’s balance sheet in coming years raises the risk of higher interest rates. Tonight, U.S Fed Chairman Ben Bernanke will speak. He will continue to speak tomorrow at the Joint Economic Committee where he will lay out his economic outlook.

Later today, there will be a lot of action on both sides of the US Canadian border, as both countries are set to simultaneously announce their trade balances (1330GMT). Last month, Canada reported a 0.8B surplus; however, the Canadian positive economic data was outshone by an unexpected decrease in the US trade deficit – which narrowed to 37.3billion.

This time around, the US expects its trade deficit to widen to 38.4billion, while north of the border, Canada predicts that their trade surplus will remain consistent at 0.8billion. This double event usually causes a lot of volatility in the USD/CAD pair.

The CAD

Canada added 17,900 jobs in March, fewer than the 25,900 economists had predicted, as construction and natural resources companies hired while the service industry shrank. Statistics Canada reported last Friday that the unemployment rate remained unchanged at 8.2%, despite a predicted decrease of 0.1%.

While not as strong as expected, this smaller than predicted increase represents the third straight gain in Canada’s employment level, further adding evidence of a rebound in the early part of the year.

The Canadian dollar fell as low as C$1.0084, or 99.17 U.S. cents following the release of the report, before partially retracing its steps to close at C$1.00139. It was near parity with the U.S. dollar just before the data. While over the course the day, the Loonie fell 0.113% from its opening price of C$1.00252, the CAD managed to hold on to its prior week gains- closing the week up 0.567% from Monday’s opening price.

However, this weaker than expected employment data may grant the Bank of Canada some extra time as it ponders when to withdraw the extraordinary stimulus measures from the economy.

The central bank has signaled that it won’t raise its benchmark interest rate from a record low level of 0.25% before July, unless inflation becomes a threat. With inflation already hovering near the bank's 2% target and stronger than expected data pointing to a second straight quarter of 5% annualized growth, markets had begun to price in a chance of monetary tightening in June. But most forex trading analysts believe the central bank will keep its pledge to hold rates at least until the end of the second quarter.

The Greenback Loses Momentum Across the Board

As the world continues along its arduous uphill climb toward recovery, there are a number of economies that are showing promise. For example, in the United States, one of the world's economic powerhouses, economic data indicate growth and recovery.

Still, the dollar continues to struggle as the GDP and inflation perspective are downgraded by the FOMC. Crude oil continues to hover around its highest amount of $86.75 per barrel since October of 2008. Gold has also continued to record gains, closing at $1,134 per ounce.

In Japan, growing exports continue to be the economy's saving grace and, although Japan isn't out in the clear just yet, the yen has been able to post improvements against the dollar. The USD/JPY forex trading pair traded at a low of 93.64 and a high of 94.37.

In Europe, Greece's debt crisis continues to weigh down the euro as investors do not know what to expect and how things will pan out. Still, other countries are showing growth, helping the euro stay afloat. The euro lost against the dollar with the EUR/USD forex pair trading at a low of 1.3354 and a high of 1.3496.

In UK, investors show concern over the unpredictable elections. While Construction PMI increased, the sterling fell against the dollar with the GBP/USD forex pair trading at a low of 1.5127 and a high of 1.5304.