The U.S Dollar weakened after economic reports revealed a surprising decline in orders for durable goods with a life span longer than three years. This raised speculation that the Federal Reserve may implement further quantitative easing, as some signs of economic struggle are apparent. According to the data, durable goods orders fell by 4.0 percent, marking the worst contraction in three years. Furthermore, metrics indicated a slowdown in the housing sector and a decline in home prices across 20 U.S. cities. On a positive note, the Conference Board of U.S. Consumer Confidence showed an increase to 70.8 for the month of February after economists only expected it to hit 63. The greenback remained weak as market sentiment shifted towards optimism on the belief that the ECB initiative to offer unlimited 3-year loans to Euro-region banks will spur interest in the region’s assets. The Canadian Dollar rose to the highest price in one week as optimism over the second offering of three-year loans by the European Central Bank reduced demand for refuge currencies like the greenback. The Loonie benefitted from an increase in certain commodities like copper, which appreciated after the U.S. reported an advance in consumer confidence.
The Euro showed a slight advance against the U.S. Dollar in anticipation of today’s “debt-offering” by the European Central Bank. According to economists, the markets are forecasting that the bank will sell close to 500 bn Euros worth of debt in 3-year loans to the region’s banks at only 1.0 percent interest. The shared currency maintained its strength as reports on the Italian bond auctions showed that 10 and 5 year bonds were sold for lower yields. An announcement by the S & P indicating its decision to downgrade Greece to a “selective default” failed to weigh on the Euro. The British Pound rallied against the U.S. Dollar but traded mixed throughout the day as the influx of economic data fluctuated between positive and negative. The Sterling increased versus the greenback following print suggesting CBI Reported Sales were better than expected, thereby reducing the likelihood of further monetary easing. The British currency continued to climb after U.S. data signaled that economic recovery might not be as certain as analysts believed it was.
The Yen traded mixed despite the fact that market sentiment gravitated towards risk. It declined against the Euro in anticipation of the ECB initiative which is expected to help stem the credit crunch while injecting more cash into the financial system.
Lastly, the Australian Dollar gained against the U.S. currency in anticipation of the ECB’s efforts to shore up E.U. banks. The Aussie pared earlier losses as global equities increased.
EUR/USD- Ireland Plans Referendum
The Euro declined earlier in the day as the Irish Prime Minister, Enda Kenny, announced the country intends to hold a referendum on the Euro-zone’s “fiscal compact,” a matter than raised doubts on how the measures would be implemented. And according to analysts, the Euro may be affected by today’s LTROs; “large pick-up” of ECB loans may cause investors to worry that the region’s banking system is in trouble. On the data front, German CPI showed an increase from 2.1 to 2.3 percent and a 0.7 percent MoM.
GBP/USD- U.K. May Avoid A Recession
The Pound rallied close to a three week high against the greenback after the Confederation of British Industry revealed that the retail sales gauge increased in the month of February, suggesting that the country won’t face a recession. The gauge went from -22 to -2 according to the business Lobby. The Sterling gained further as U.S. data showed that Durable Goods Orders declined 4.0 percent, indicating that the American economy hasn’t recovered yet, and the Federal Reserve may implement another bout of quantitative easing.
USD/JPY- Yen May Decline Further
According to economists and currency strategists, the Yen may continue to decline as oil prices rise and as the current account continues to fall. The Yen traded mixed despite the upbeat market sentiment. The Japanese currency slipped versus high-risk assets in anticipation of the ECB program, which is expected to pump liquidity into the financial system. Positive news from the bond markets showed a decline in yields, with the 10-year yield at 5.5 percent, certainly lower than it was when the crisis peaked in 2011. This and anticipation of the ECB’s initiatives fueled risk appetite causing the Yen to depreciate against the majority of its peers, but not against the greenback which was weighed down by speculation over another bout of quantitative easing.
USD/CAD- Loonie Climbs Prior To ECB Operation
The Canadian Dollar advanced against the greenback before today’s European Bank loan program kicks off. It pared gains after reports from the U.S. confirmed a huge decline in the orders of durable goods, and home prices in 20 American cities declined more than economists expected. According to statistics, home prices plummeted to the lowest level since 2006, when the housing crisis begun and durable goods orders fell by 4 percent, which was the most in three years.
Today’s economic calendar shows that the E.U. will report on CPI and Core CPI. The U.K. will release data on the M4 Money Supply. The U.S. will announce its GDP, and the Federal Reserve Chairman, Ben Bernanke, is scheduled to testify before the Joint Economic Committee. Japan will issue figures on Capital Spending. And lastly, Australia will report on Private New Capital Expenditure and Building Approvals.