The U.S. Dollar weakened against the majority of its peers on Friday after the release of better than anticipated economic data raised demand for risk assets. However, speculation over today’s meeting between E.U. Finance Ministers in Brussels brought uncertainty to the markets. Data issued by the U.S. Census Bureau showed that building permits rose 0.7 percent. And the index for manufacturing in the Philadelphia area increased more than anticipated during the month of February. According to the Conference Board, the U.S. economy is expected to continue expanding as the index of leading indicators advanced 0.4 percent. The Labor Department added that the underlying inflation rate has risen rather quickly in the last four months. Metrics showed that the Consumer Price Index climbed 0.2 percent because of the hike in gasoline and food prices. Today may be a quiet trading day as the U.S. markets will be closed in observance of President’s day. The American Dollar was slightly higher versus the Canadian currency on Friday, but the Loonie pared some of its losses on hopes the Greek debt talks will progress.
Given the fact that Italian Prime Minister Mario Monti, German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos expressed optimism that E.U. Finance Ministers would approve the bailout package for Greece, the markets also responded with slight optimism and pushed the Euro up in value. Meanwhile, gold prices dipped as risk appetite increased. Adding to the market’s relief was the fact that overnight borrowing from the ECB fell on Thursday, reflecting a reduction of tension since the central bank flooded the financial system with liquidity. But the Euro did not remain strong and declined in anticipation of today’s summit aimed at discussing the fate of the Greek aid package. The 17-nation currency continued to spiral to the downside after Moody’s announced the downgrade of several Euro region nations and the likelihood it will downgrade other nations as well. The British Pound came close to a one-week high versus the greenback on Friday after metrics revealed that U.K. Retail Sales increased. The currency’s rally was capped by doubts of an agreement on the Greek bailout. The Pound managed to climb against the Euro, but declined towards the end of the week, as many market traders still believe the summit may produce positive results.
The Yen dropped against all of the majors after the Bank of Japan announced plans to increase its asset-purchasing program. The Japanese monetary unit dipped to a six-month low versus the U.S. Dollar as the better than forecast U.S. economic data reduced the likelihood the Federal Reserve will implement additional quantitative easing.
The Australian and New Zealand Dollars gained on optimistic sentiment that Greece would obtain the aid package this week. The Australian currency traded at a six-month high as equities rallied around the globe.
EUR/USD- Investors Await Today’s Talks
The Euro fell in anticipation of today’s Greek bailout summit. Meanwhile, the ECB announced its intentions to swap Greek debt bonds for new ones of the same nominal value. According to economists, this is a measure aimed at protecting private investors. The 17-nation currency slipped as Moody’s downgraded the credit ratings of Italy, Spain and Portugal and may reduce the rating of Austria, France and the U.K. On the data front, Friday’s releases showed that Germany’s Producer Price Inflation increased 0.6 percent surpassing forecasts.
GBP/USD- Retail Sales Rise
The Sterling’s advance was supported by stellar data revealing that Retail Sales increased 0.9 percent in the month of January, after a 0.2 percent decline had been expected. Other reports from last week showed that the Bank of England revised its inflation forecast lessening the likelihood of further quantitative easing. In addition, Moody’s placed the U.K. rating on “negative outlook” citing the problems in the Euro region as the main reason. The Euro advanced against the Pound as optimism over the Greek bailout talks dominated market sentiment.
USD/JPY- BOJ Raises Asset Purchases
The Yen depreciated to the lowest level since November against the U.S. Dollar after the Bank of Japan indicated its intentions to raise the asset purchases to 30 trillion Yen in order to increase economic stimulus. The Japanese currency also declined against its most traded counterparts and continued to weaken versus the greenback after the central bank’s governor, Masaaki Shirakawa, stated the bank plans to maintain a liberal monetary policy. Furthermore, the Bank of Japan set an inflation target of 1 percent.
NZD/USD- Kiwi Declines
The New Zealand Dollar declined against the U.S. currency erasing last week’s gains, but capped the decline on the forecast that Greece will obtain the aid package. Meanwhile, investors await data on Producer Price Inflation which reveals an accurate picture of consumer inflation. The Kiwi had advanced on Friday after the Reserve Bank’s Governor, Alan Bollard, stated that the country’s economic growth may be “understated” when compared to the economic performance of other countries, given the conservative manner in which statistics are interpreted.
Today’s economic calendar is light. However, the highlight will be a meeting of key E.U. Finance Ministers set to be held in Brussels. The topic to be discussed is the bailout package for Greece. The economic calendar shows that Australia will publish the Minutes of the Monetary Policy Meeting, and the Reserve Bank of Australia’s Governor will deliver a speech. Lastly, New Zealand will report on its Inflation Expectations.