The UK’s trade deficit narrowed in March, driven in particular by stronger exports to the US, China and Russia.The seasonally adjusted trade deficit in goods and services was £2.7bn, against £2.9bn the month before, the Office for National Statistics said.

Car exports in March were worth £200 million more than the previous month.

The deficit on seasonally adjusted trade in goods was £8.6 billion in March, unchanged on February.

The ONS said that the surplus on trade in services was estimated at £5.8 billion in March- up compared with a £5.6 billion surplus the month before.

The deficit in trade in goods with EU countries widened by £700 million to £4.5 billion in March, compared with the deficit of £3.7 billion in February. Exports were virtually unchanged at £13.2 billion, and imports rose by £800 million, or 4.4%, to £17.6 billion.

Trade in goods with non-EU countries reached record levels, with both imports and exports at an all-time high in March.

Imports to the UK of goods from non-EU states rose by £700 million, or 4%, to £17.3 billion, while exports rose by £1.4 billion, up 12.1%.

That left the overall deficit on goods trade narrowing by £800 million to £4.1 billion, compared with February’s deficit of £4.9 billion.

The value of chemicals exported to non-EU countries rose by £200 million in March. The shipbuilding sector also saw the value of exports rise by the same amount.

A study completed by the National Institute of Economic and Social Research (NIESR) is predicting the UK unemployment rate will rise from the current 8.3% to nearly 9% by the end of 2012. The study blames low growth in the coming two years as the UK steers itself out of this technical recession.

NIESR recognized that later revisions may alter this, but said “small quarter-to-quarter movements of this sort are largely irrelevant to the broader picture of an economy that remains very weak”.

The big ticket data release this afternoon is the US non-farm payrolls.

It’s been a mixed bag data wise leading up to today’s announcement so there is a large degree of uncertainty over the actual number.

Consensus estimates are for 175K jobs created in April, initial jobless claims yesterday came in better than expected which point towards a positive number but at this stage it is difficult to call.

The Dollar has regained significant ground against Sterling in the last week and the risks remain to the downside, however if the number disappoints and we could be trading above 1.62 quite quickly.

The sterling/euro exchange rate has broken its correlation with movements in EUR/USD for the time being, with self-governing Sterling strength evident.

This is been confirmed by the shift in interest rate differentials between the UK and eurozone, a move which has gone in favour of GB Pound strength.

The view now points to some further downside potential in this currency pair, with a test of technical support around 0.8067 on the cards.

Mervyn King has lived up to his nickname as “Merve the Swerve” as he rejected criticism for the financial credit crunch crisis.  He blamed the banks, the system and the decision to de-regulate power from the Bank of England in the past.

Mervyn King went on to talk about the challenges facing the banking infrastructure going forward with a need for regulation, resolution and restructure which will be demonstrated next year when the BoE’s new financial policy committee will have the power to regulate banks.

King supported the idea of ring fencing high street bank operations so they have their own financial cushion to avoid failure and noted the necessity for a framework to allow a bank to fail without being nationalised.

Over to the markets and UK PMI services data has just come out significantly worse than expectations with a fall to 53.3 from 55.30 in March, however UK service expectations improved.

UK Nationwide House Price data also came in weaker than expected.  Nationwide expect house prices to be flat or moderately lower over the next 12 months.

The Pound is relatively unchanged on the data.

A key event today is the ECB meeting, it is widely expected that rates will remain on hold but there is an outside chance of a rate cut.

The key focal point will once again be the press conference following the meeting where Mario Draghi will face key questions on the outlook for Europe.

Recently we have been hearing calls for a clearer strategy on how to tackle slumping growth in the eurozone and what role the ECB can play in assisting the system.

Yesterday European shares and the euro came under renewed pressure after confirmation that Spain’s economy was again in recession and German PMI for April was unexpectedly down. To add fuel to the growing fire the Dutch PM and entire cabinet resigned piling political worries on top of economic woes.

Along with a steep fall in shares we saw spreads widening between struggling sovereign Euro economies and Germany, in addition the Dutch/German spread widened.

Lots of risk aversion in afternoon trading yesterday with the main benefactors being the US Dollar and the Japanese Yen.

Today we have started a little brighter and bond spreads have narrowed slightly from yesterday- the main reason for this is that Dutch, Spanish and Italian bond auctions all went well helping to firm up the Euro from yesterday’s lows.

The main take from yesterday is just how quickly things can turn sour and this highlights the fickle position of the ailing euro.

Today we have seen UK data in the form of public sector net borrowing which showed that the government borrowed more than expected for March but still met its annual target.

Tomorrow we see the crucial preliminary first quarter GDP data.

We have seen some bright sparks in the UK economy of late in relation to unemployment data and retail sales.

However the data has been inconsistent and we have seen a weak performance in the construction sector which could lead to a negative number.

Tomorrow’s number if negative would be a huge blow psychologically to the UK’s recovery and will undoubtedly hit confidence in the UK’s recovery strategy and the pound.

Conversely if we see a stronger than expected number we could see the Pound rally further after a strong performance recently.

The International Monetary Fund’s (IMF) has raised an additional £268 billion ($430 billion) for the pot meaning another set of support for the eurozone when it will be required.However, several other uncertainties persist to bother markets signifying that any rally could be short lived.

There is plenty of data and events this week including central bank decisions in the US, Japan and New Zealand.

In addition, US corporate earnings will stay under the spot light while bond auctions in the eurozone will also provide market drive.

It is doubtful that the Fed meeting tomorrow and Wednesday will incite any change in the currently low FX volatility atmosphere given that strategy settings will stay unchanged, with the bulk of FOMC members likely to look for the first alterations at the earliest in 2014.

The Fed as a result is unlikely to stir the Greenback out of its daze and if anything a fall in durable goods orders, little change in new home sales and a pull back in consumer confidence will play in support to Dollar bears over the coming week.

Even a relatively firm reading for Q1 GDP will be seen as backward looking given the slowing expected in Q2.

Over to Europe and the single European currency will have to compete with political proceedings as it absorbs the outcome of the initial round of the French presidential elections.

The reality is that the political course will carry on to a second round on 6 May which will act as a limit on the euro.

A variety of ‘flash’ purchasing managers indices (PMI) readings and economic opinion gauges will present some primary direction for the Euro but mostly stable to softer readings suggest little stimulation.

As a result euro/ US Dollar will largely remain within its recent range although news from Spain and Italy and their debt markets will have the potential to bring into play larger moves against the euro.

Money markets were dealt a surprise as the Consumer Price Index (CPI) rose in the UK to 3.5% up from 3.4% in February according to the Office for National Statistics. The ONS blamed higher food prices specifically soft drinks, bread, cereal, meat, fruit and vegetables coupled with rises in clothing & footwear.

However there was some good news as utility bills were lower than one year ago following energy companies reducing tariffs in February last year.

All eyes will know be on the Bank of England as this latest rise could reduce the likelihood of additional Quantitative Easing in next months MPC meeting but with stuttering growth the Bank of England may have no choice.

So far today in the UK we have seen the UK Jobless Claims figures fall for this first time since last spring.

Unemployment fell by 35,000 to 2.65m according the ONS leaving the overall rate at 8.3%.

Furthermore we saw voting in the Bank of England for interest rates and QE voting come in at 9-0 and 8-1 to keep rates on hold and maintain the contribution at £3.25bln.

Sterling has rallied as a result of these figures and currently sits at 1.2212 against the Euro the highest reading since September 2010. Cable has also risen against the US Dollar and is fast approaching the key psychological level of 1.60 currently trading at 1.5979.

In other financial news Warren Buffet has announced he has stage one prostate Cancer which will create further hype around the successor to his Berkshire Hathaway business.

As for the rest of this week we are pretty light on data with inflation data in New Zealand, Canada and the Germany of any real significance.

The eurozone is still heavily under the spotlight as Spanish and Italians’ debt interest rates are still dangerously high.However sentiment that the ECB could resume emergency bond buying has helped to ease fears.

The euro still remains pegged toward 1.31 against the US Dollar and 1.30 remains a key support area for EUR/USD and given the consolidation at 1.31 we could see some recovery towards 1.3150 to 1.32.

The Pound on the other hand is going from strength to strength and has hit a one year high on a trade weighted index- that is the Pound as a measure against a basket of currencies.

The Pound initially edged higher against the euro in line with euro concerns and improved economic numbers from the UK.

Sterling however has not managed a sustained push higher against the euro. This suggests a lack of appetite to sell the euro too much as the market adopts a wait and see approach to the developments on Spain and Italy.

In other news the yen fell for a second day against the dollar and euro after Bank of Japan Governor Masaaki Shirakawa indicated further easing of monetary policy.

Later today we see further feedback from the US with initial jobless claims and the producer price index- with markets in risk off mode and following weaker than expected payroll numbers last week a good set of numbers is hoped for.

The UK economy is showing a few signs of improvement over the first three months of this year according to the British Chambers of Commerce (BCC).
The latest quarterly economic survey by the business lobby said that domestic orders and exports were all higher from the previous quarter.

The BCC had previously warned of stagflation.

But the UK economy “is still facing huge challenges and the recovery is much too slow”, the BCC said.

The group expects economic growth of 0.3% in the first quarter of 2012, which would mean the UK would avoid a technical recession – defined as two consecutive quarters of contraction.

Yesterday data suggested the manufacturing sector grew at its fastest pace for 10 months in March in an encouraging sign that the economy could return to growth in the first quarter, after contracting by 0.3% in the last three months of 2011.

It will be finely balanced, however, as official figures showed trading conditions were difficult for retailers in January and February.

The BCC predicted that the economy would grow by just 0.6% across 2012.

The independent Office for Budget Responsibility, which provides the government’s forecasts, has predicted growth of 0.8% in 2012.

Confidence among businesses increased on the previous quarter, but remains weak by historical standards, the group said.

The group forecasts unemployment, which currently stands at 2.67 million- will continue to rise to 2.9 million over the next year.

It called for “forceful measures” from the government to help boost growth.

“It’s encouraging to see that businesses are feeling more confident at the start of 2012 than they were at the end of 2011,” said John Longworth, director general at the BCC.

“But that underlines the need to support and foster growth and investment by companies to ensure that the increases we have seen in the first quarter continue.”

As Wise Money blogged yesterday the official figures from the Office for National statistics indicated that the UK economy fell more quickly towards the end of last year than initially thought. GDP fell by 0.3% in Q4 last year as opposed to the 0.2% reported. This fall shows a change from the 0.6% in the previous quarter and takes the overall growth figure to 0.7% down from 0.8% estimation.

One of the main drivers behind this fall is the 0.7% drop in manufacturing followed by 0.2% construction and services at 0.1%.

So far today Nationwide have revealed that house prices were pushed lower than a year ago for the first time in six months following a 1% fall in March.

Nationwide are attributing the slow down to changed in the stamp duty rules causing a “headwind” in an already difficult environment.

Since the budget first time buyers must now pay 1% on properties worth more than £125,000 following a two year holiday and there’s a new super stamp duty for properties sold over £2 million where a 7% payment is now due.

The figures were based on Nationwide mortgage data and indicated falls in all but three regions which were London, North England and Scotland.

The combination of these stories has put Sterling under pressure so far this morning with cable dropping off from the mid 1.59s yesterday to 1.5891 at present but up slightly against the Euro at 1.1971.

With the relative calm in the markets investors are becoming increasingly comfortable with the lack of movement in currencies.

This in line with the fall in risk aversion as market concerns over US growth and Eurozone debt problems retreat.

In the short term there is little catalyst to shake markets out of their trance and we could see euro/US Dollar continue to drift higher.

Certainly, firmer risk appetite, is a positive driver for the euro while the pull back in US bond yields has restricted the Greenback.

The UK’s Q4 final GDP has come in at -0.3% which is lower than the expected -0.2% and is a disappointing number for the Pound which has faded lower this morning against the euro and the US Dollar.  The number is not a great surprise but more of a disappointment and will heap pressure on the Q1 2012 GDP to come.

The US Dollar remains somewhat on the back foot following Fed chairman Ben Bernanke’s dovish tone earlier in the week with rhetoric suggesting more QE could be required and the loose monetary policy stance is here to stay despite a sustained run of positive economic data.

The USD has managed to claw back a little overnight against the EUR and the GBP- this corresponds to a move out of risk on weaker Chinese data.

Elsewhere risk currencies such as the Australian Dollar have come under pressure overnight as further concerns of a slowdown in China have dampened demand for risk currencies.

February’s industrial sector profit fell 5.2% year to date, the markets will be closely watching the situation in China.

Essentially China and the US are the key drivers behind global growth and any signs of slowing growth will turn the markets into risk off mode benefitting the safe haven shores of the USD, JPY and CHF and weakening risk on commodity based currencies such as the AUD & South African Rand.