The U.S. Dollar strengthened as the outlook for the U.S. economy improved and as yields moved in favor of the greenback. The market experienced a tectonic shift as it benefitted from positive data and changes in monetary policy. On the data front, reports showed that import prices advanced 0.4 percent MoM; in addition, the Current Account deficit expanded to more than-$124.1 billion which was more than previously estimated. The Canadian Dollar dipped slightly as economic releases revealed that the country’s capacity utilization came in at 80.5 percent. The lower price of crude oil was another factor weighing on the Loonie, although Canada’s dollar continued to outperform other commodity related monetary units.
In Europe, the German Chancellor, Angela Merkel, stated that regional leaders are working hard to stem the debt crisis, though the release of lackluster economic data seems to reflect the contrary. The chancellor went on to praise Italy’s Prime Minister for his success in implementing strict austerity measures needed to overhaul the Italian economy. In Britain, the Chancellor of the Exchequer, George Osborne spoke of his plans to propose the re-introduction of “perpetual gilts” an instrument once used in the 19th century to postpone the payment of debt. This will allow the British government to borrow money at extremely low interest rates for as long as possible. The Sterling strengthened against the majority of its peers following the biggest surge in gilt yields in four months.
The Japanese Yen continued to spiral downwards against the U.S. Dollar as the Federal Reserve improved its outlook for the U.S. economy and refrained from implementing further monetary easing.
Lastly, the South Pacific currencies declined versus the U.S. Dollar as the Federal Reserve increased its assessment of the American economy thereby hinting that the central bank won’t institute further stimulus which could weaken the value of the greenback. The Aussie rose against the Yen as commodities rallied and fueled the belief that the rally would benefit the nation’s exports. The Kiwi also traded higher against the Yen as Asian stocks rose in tandem with world equities, thereby increasing demand for high-risk assets.
EUR/USD- Euro Weakens On U.S. Data
The Euro declined against the greenback as positive U.S. economic data reduced the chances of the Federal Reserve employing further monetary stimulus. Demand for the U.S. currency was bolstered after the Federal Reserve raised the assessment of the country’s economy during its meeting on Tuesday. On the data front, Industrial Production across the Euro-zone climbed for the first time in three months. However, the annualized rate of consumer price inflation didn’t change during the month of February and stayed above the ECB target. According to Eurostat Industrial Production rose 0.2 percent and consumer prices increased by 0.5 percent. Regarding the Greek saga, Euro-group leader Jean-Claude Juncker stated that key Finance Ministers had formally agreed to award Greece the next bailout payment of 130 billion Euros.
GBP/USD- Gilts Benefit Sterling
The Sterling rose against the majority of its peers as gilt yields increased the most in four months. However, the Pound dropped versus the U.S. Dollar as optimism towards the U.S. economy caused investors to assume the Federal Reserve will refrain from instituting a third round of quantitative easing. The Sterling was further weighed down by disappointing economic data revealing that the number of unemployed workers increased more than forecast in February, and by the fact that unemployment remained at 8.4 percent –the highest since 1995. Other data showed that the claimant count climbed by a seasonally adjusted 7,200 last month. But the losses were capped as investors anticipate the U.K.’s economy will improve given the positive metrics on retail sales and housing. Other news indicated that Fitch revised the U.K.’s currency outlook from stable to negative, therefore limiting the “fiscal space” for the country to absorb any further negative economic shocks.
USD/JPY- Yen Dips To 11-Month Low
The U.S. Dollar traded at an 11-month high versus the Yen after an increase in assessment of the U.S. economy bolstered expectations the Federal Reserve will not implement another bout of quantitative easing. The Yen remains under pressure as its record trade deficit has threatened its status as a refuge currency. Other factors weakening the Yen included the fact that investors will receive an extra yield for holding two-year treasuries rather than Japanese debt. This yield has widened 24 basis points, the most since July of 2011.
USD/CAD- Loonie Trims Losses
The U.S. Dollar erased gains against the Canadian Dollar as the positive outlook for the U.S. economy fueled greater demand for the Loonie. Canada’s currency increased after the Federal Reserve stated it expects “moderate growth” and mentioned that the rise in oil prices could place added pressure on inflation. The Loonie traded at an eight-month high versus the Yen as Japanese investors begun to look abroad for better financial returns.
Today’s economic calendar shows that Switzerland will release the Interest Rate Decision. The E.U. will announce Changes in Employment and the European Central Bank will release the Monthly Report. Japan will publish the Minutes from the last Monetary Policy Meeting. And the U.S. will report on Initial and Continuing Jobless Claims, PPI, Core PPI, the Philadelphia Fed Manufacturing Index, and the NY Empire State Manufacturing Index.