The Euro was broadly lower to start the week as political risks and weakness in macro data weighed on the currency. Flash PMI data dropped to 46 (against expectations of 48), which places the report firmly in contractionary territory and is not showing the lowest levels since the middle of 2009. The presidential election in France was also one of the main themes, with the Socialist Party candidate winning the first phase of the voting process. The next vote will take place on May 6th.
In Australia, there was more negative data, with the first quarter Producer Price Index (PPI) coming in much lower than markets were expecting. This will likely result in many analysts revising down their estimates for Consumer Price Index (CPI) figures, which will be released tomorrow. The broader issue here will be whether or not these numbers will lead the Reserve Bank of Australia to reduce interest rates at its next meeting, which will be held relatively soon, on May 1st. This could turn out to be a major story for the markets in the coming weeks, as an additional rate cut in June is also still seen as a possibility.
Weekend news headlines came from the IMF, which received offerings of more than $430 billion from member countries, as a means for funding its economic rescue programs. The Euro, however, wasn’t helped much by the news as the G20 suggested that these funds are not directed toward any specific region. The introduction of these funds was also widely expected, with no major alterations in the final amounts.
Looking ahead this week, currency markets will pay special attention to the FOMC monetary policy meeting on Wednesday and the Bank of Japan policy meeting on Friday. Given that these two central banks of seen a wide divergence in policy in the last two months, these meetings could produce renewed volatility in the USD/JPY. The US Fed has signaled an end to its quantitative easing programs while the BoJ continues to suggest the need to more economic stimulus, and if these trends continue, it will be very bullish for the currency pair, likely sending it through the 85 region. Other news this week will be centered on corporate earnings as several large companies in the S&P are scheduled to make their releases.
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