RBA cuts interest rates by 0.25%

We start the week in the UK with
the focus still on the big release on Friday’s US non-farm payrolls
data coming out at 165k which was slightly higher above market
expectations of 150k. On the back of this month’s US employment
figures, the previous months’ numbers were also revised to a higher
level (March revised to 138k and February to 332k). This has
reduced the unemployment rates in the US down to 7.5% which is the
lowest since 2009. The dollar had a brief yet volatile surge
against all of its counterparts as markets have continued with the
sentiment that the current policies of Federal Reserve’s
quantitative easing program can be cut back at any time, as deemed
fit. The dollar surged against the Japanese Yen, most notably to a
high of 99.15, and sitting at 99.35 in opening trade this morning
as strong resistance takes over just ahead of the 100 level. With a
fairly quiet economic calendar for today for the US, the markets
continue to trade on news from Europe.

The Euro, on the other hand, after
falling to lows of 1.3020 against the Greenback has managed to claw
back some of its gains and stands at the 1.31 level. The main
reason for weakness in the Euro was last week’s ECB announcement
that interest rates were slashed by 0.25% to stand at a low of
0.5%.We had a release of European PMI index which was revised to
46.9 from 46.5 but that did not augur well for the troubled economy
as growth remains below the crucial 50 level, as fear resurfaces
that the bloc will fall into a further recession in the coming
quarter. On the Sentix investor confidence front, figures were
slightly better at -15.6 for April from -17.3 last month. Retail
sales for the region were also down to 2.4% as the region rapidly
falls into contraction. The single currency pared some of its
losses on the back of the gloomy data as Mario Draghi reiterated
that the central bank was prepared to do more to further weakness
in the core European economies.

Meanwhile, in other news, Asian
stock markets have gained for the second consecutive day, as the
Reserve Bank of Australia cut its benchmark interest rate by 0.25%
to 2.75%. The Canadian Dollar also strengthened against most of its
counterparts as a government report showed building permits rose
more than expected in March. The bank holiday in the UK left the
pound at relatively similar levels to closing trade on Friday as we
open against the US Dollar at 1.5540, as Sterling faces heavy
resistance just before the 1.56 level and has failed to break it in
its recent surge. Shop price inflation slowed sharply in April to
its lowest level in over 3 years as retailers slashed prices to
lure business activity, in the UK. With a relatively quiet week for
Sterling, markets look forward to Thursday’s Interest rate decision
though it is likely to be of much consequence, as rates are
expected to be on hold at the current level.