The U.S. Dollar weakened on Friday after statements by the Federal Reserve and economic data on growth confirmed that the U.S. economy expanded at a slower pace than anticipated. The FOMC concluded that interest rates should remain at 0.25 percent and Fed Chairman, Ben S. Bernanke, confirmed that interests rates would remain low until 2014. Other reports released on Friday indicated that the economy only grew 2.8 percent in the last quarter of 2011. According to analysts, investors realize that the Federal Reserve is acting cautiously and will therefore scrutinize every piece of U.S. economic data as it’s announced. Today, the markets will focus on U.S. personal income as well as consumer spending. Other releases revealed that the Canadian Dollar continued its rally versus the U.S. currency for the third week in a row after commodities went up as a result of the Federal Reserve’s announcement to keep interest rates unchanged until 2014. Furthermore, the Loonie benefitted as crude oil, its biggest export, climbed to $99.76 a barrel.
Meanwhile, French President Nicolas Sarkozy suggested in a recent televised interview that the Euro region debt crisis is finally under control due to the concentrated efforts of its leaders. And while Germany continues to pressure Greece to surrender control of its budget to European institutions, Greece is still hoping to reach an accord with creditors to restructure its debt. According to sources, bondholders are now inclined to accept a reduction of their debt holdings. President Sarkozy’s statement came prior to the Brussels summit which resumes today. E.U. leaders are expected to finalize a treaty and hopefully agree on the 500 billion Euro bailout fund during the upcoming meeting. The British Pound came close to a five-week high against the greenback as the money markets grew optimistic over the Greek debt swap deal, and the U.S. Dollar weakened on less than stellar economic data. The British Pound’s gains were capped by metrics revealing that the U.K.’s economy contracted by 0.2 percent in the fourth quarter of 2011. Investors are likely to focus on the publication of manufacturing activity out of the U.K. for signs that the country’s economy is inching close to a recession. The U.S. currency traded at a two-month low versus the Swiss Franc as the market became hopeful that Greece will be able to restructure its debt.
The Yen gained against the U.S. Dollar on indications the Federal Reserve will inject further stimulus into the economy; it rose higher on the release of less than stellar U.S. economic growth figures. In the meantime, the Yen has remained strong as worries over the Greek debt talks continue to increase demand for refuge. And despite news of Japan’s first trade deficit in over three decades, the Bank of Japan commented that exports are likely to rise as the global economies recover.
Lastly, the New Zealand Dollar appreciated further as Governor of the Reserve Bank, Alan Bollard, stated that the country would be able to weather a slowdown of the world’s biggest economies. In addition, data showed that the nation’s exports exceeded its imports by $338 million NZDs, although its Services Industry advanced at a slower pace than anticipated during the month of December. The Australian Dollar also finished the week on a high note versus the greenback on renewed hopes that the Greek debt negotiations are progressing.
EUR/USD- Euro-Zone’s Crisis Under Control
The Euro climbed to a six-week high against the greenback on optimism Greece is making progress and will probably reach an accord with creditors. The shared currency advanced as less than positive U.S. growth reports weighed on the U.S. Dollar. Economists have indicated that an accord is crucial if Greece is to receive its next bailout installment. Greece is expected to make a 14.5 billion Euro payment on March 20th to avoid a default. The Euro remained strong even after Fitch Ratings downgraded the debt ratings of Spain, Belgium, Italy, Slovenia and Cyprus, citing a “lack of financial flexibility” as the reason.
GBP/USD- Pound Close To 5-Week High
The British Pound came close to a five-week high against the U.S. Dollar as lackluster economic growth reports weighed on the greenback, and on optimism over the Greed debt talks. A release of the Bank of England’s Policy meeting Minutes revealed that policy makers are still worried about the country’s exposure to the turmoil in the Euro region, and may implement monetary easing if the evidence supports a need for such a move.
USD/JPY- Yen Rises Sharply
The U.S. Dollar dropped sharply against Japan’s currency after the Federal Reserve suggested it’s still considering another round of quantitative easing to boost the economy and as data showed the economy grew slower in the last quarter of 2011. Investors will pay close attention to the release of data on Japan’s Unemployment as well as Industrial output.
USD/CAD- USD Falls Below Parity
The U.S. Dollar dropped below parity versus the Loonie last week after the Federal Reserve announced its intentions to leave interest rates unchanged until 2014. Canada’s Dollar retreated from parity following reports showing the U.S. economy grew at a slower pace than expected, but sustained its biggest weekly gain in one month versus the greenback as crude oil prices increased.
Today’s economic calendar shows that the E.U. will release the Business and Consumer Sentiment Survey and German CPI. The U.S. will report on Personal Spending, Personal Income, and the Core PCE Price Index. New Zealand will announce data on Building Consents. Japan will issue its Unemployment Rate and Industrial Production. Lastly, Australia will publish NAB Business Confidence.