The U.S. Dollar declined against the majority of its peers after China announced it would reduce the reserve requirements for its banks, thereby spurring a decline in demand for safe havens. Risk appetite was also supported by optimistic sentiment that a group of E.U. Finance Ministers would reach an agreement to grant Greece the 130 bn Euro aid package. Comments by key players from the Euro region influenced the positive outlook and prompted the U.S. currency to dip further against the Euro. Meanwhile in Canada, reports indicated that British Columbia, the nation’s third largest province, is starting to benefit from signs that the U.S. economy is expanding. The United States buys one half of the province’s exports.
The Euro rallied the most in almost two weeks against the U.S. Dollar on speculation that Greece will obtain the bailout package it desperately needs. However, there are major hurdles that Greece still has to overcome including showing how it will handle its debt to GDP ratio. Some analysts believe expectations are unrealistic and Germany is somewhat skeptical as to how Greece will meet its responsibilities. The British Pound rose for a fourth consecutive day against the U.S. Dollar after reports revealed that home prices went up in February. However, the Sterling slipped versus the Euro as the shared currency benefitted from market optimism over the upcoming E.U. meeting in Brussels.
The Yen started the week on a negative note and plummeted against its counterparts after the nation’s Finance Minister announced the largest expansion of the trade deficit on record. Japan’s monetary unit traded at a six month low versus the greenback as the trade deficit widened to 1.48 trillion Yen in the first month of 2012. The Yen’s decline was also caused by a hike in demand for risk assets prompted by optimism that Greece would receive its bailout package and by news that the People’s Bank of China will ease up on capital requirements.
Lastly, the South Pacific currencies rose versus the majority of their peers on the prospect that E.U. Finance Ministers won’t deny Greece the bailout package. The two currencies rallied after China’s central bank stated that lenders won’t have to set aside as much cash as they do now. It is believed that the move will benefit the Chinese economy while boosting demand for exports from Australia and New Zealand.
EUR/USD- Euro Gains On Brussels Summit
The Euro rose as risk appetite dominated market sentiment after E.U. leaders expressed optimism over the upcoming meeting between regional Finance Ministers. Investors believe the meeting will produce the solution to the Greek debt crisis and they expect that Greece will be granted the next aid package. The economic calendar was light, but data showed that Italian Industrial Orders and Sales went up, while French Business Confidence remained unchanged. French Production Outlook dipped, though not as much as anticipated.
GBP/USD- Home Prices Rise
The Sterling rallied versus the greenback as industry reports showed the country’s home prices went up during the month of January, suggesting the economy is recovering. The Pound traded mixed the remaining of the day as risk appetite remained high while investors speculated whether Greece would be granted the bailout. On the data front, releases showed that the House Price Index increased 4.1 percent MoM.
USD/JPY- Trade Deficit Hits Records
The Yen plummeted against its peers and traded at a six month low versus the U.S. Dollar as reports showed the country’s trade deficit widened the most on record due to a 9.3 percent YoY decline in exports. The dramatic fall was brought on by high currency values and a slip in demand from other nations around the globe. Other reports revealed a slight decline in the Leading Index, a hike in the Coincident Index and a drop in sales at department and convenience stores.
AUD/USD- News From China Benefit Aussie
The Australian Dollar gained against the majority of its counterparts on hopes that E.U. Finance Ministers will give Greece the bailout package it desperately needs. The currency continued to trend to the upside after China’s central bank announced it would reduce the reserve requirements, a factor that will likely improve demand for exports from the Aussie nation. The Aussie Dollar rose versus the Yen as Asian equities rallied.
Today’s calendar shows that Canada will report on Wholesale Sales, Retail Sales and Core Retail Sales. The E.U. will release data on Consumer Confidence. And Australia will announce the Wage Price Index.