UK trade gap narrows to help sterling gain back earlier losses

US Dollar:

The US dollar initially fell against the euro and yen, later recovering as a larger-than-expected US trade deficit prompted investors to debate the strength of the recovery in US manufacturing based on the export data. Fig-ures showing a jump in imports of consumer goods and other products widened the US trade gap in February to $39.7 billion had a lesser impact on the greenback compared to a government report showing the closely watched bilateral deficit with China was its lowest in nearly a year.
DATA: Core CPI, Core retail sales and Fed Chairman Bernanke Testifies

Pound:
Sterling reversed early losses to trade slightly higher against the US dollar after data showed the UK trade gap narrowed more sharply than expected last month, easing some concerns about the economy. Britain's trade deficit narrowed to 6.179 billion pounds in February, its’ smallest since June 2006, after exports rebounded strongly from weather-related weakness in January. The figures boosted hopes that trade will have made a positive contribution to growth in the first quarter of this year, though analysts warned that distortions due to the weather meant the pace of improvement was unlikely to be sustained. Earlier, data from the British Retail Con¬sortium also showed retail sales jumped at their fastest pace in a year in March, although the figures were flat¬tered by the earlier timing of Easter.
DATA: No major data to be released today

Euro:
The euro fell against the US dollar, reversing the morning's higher trend as investors refocused on problems in the Euro Zone, leaving aside earlier pessimism about US trade data. Results from a Greek Treasury bill auction showed the market still required a high premium to hold Greek assets. Greece easily sold its allocation of 6-month and 12-month T-Bills, raising 1.56 billion euros, with the inclusion of non-competitive bids, but at a yield which was costly for the debt-laden country. With the Greek bill auction behind it, sentiment towards the euro remains poor. On Monday, the EUR climbed to a near 1 month high of $1.3691 after Euro-Zone finance minis¬ters agreed on a financial aid package for Greece, before paring gains as investors sought clarification about the plan. However, analysts said that although the EUR is now undergoing a rally the financial package does not change the medium-term outlook, which is that the European economy is likely to under perform other de¬veloped economies. Thus, the downtrend for the EUR/USD cross looks set to continue.
DATA: No major data to be released today

General:
The Australian Dollar was under heavy selling pressure as the pullback from Monday's year highs accelerated. The AUD is facing headwinds as the market has already priced in RBA rate hikes and the recent out-performance of the commodity currency is pared back. Overall the AUD/USD traded with a low of 0.9221 and a high of 0.9297 before closing the US session at 0.9280. UPDATE March Consumer Confidence -1.0%.

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