The U.S. Dollar rallied against the majority of its most traded counterparts and erased losses against the Euro as investors sought refuge due to bad news from the Euro zone. Bleak reports can out of Spain, where bond yields rose to 4.9 percent in response to comments by Prime Minister Mariano Rajoy indicating that his government will base the 2012 budget on a reduced deficit target. Friday was a light day in terms of economic releases, however, Federal Reserve Chairman Ben Bernanke issued statements indicating that the central bank won’t implement another bout of quantitative easing for now, which caused the U.S. Dollar to trade at a nine-month high versus the Yen. The greenback rallied further on speculation over strong data showing that the labor sector added 210,000 jobs in February. The Canadian Dollar gained the most since January against the U.S. currency on forecasts that Canadian exports will increase given the improvement in global growth, thus raising the likelihood of a hike in interest rates. The Loonie advanced against the majority of its peers in the past week as crude oil reached the highest price since 2008.
The Euro plummeted versus the U.S. Dollar despite efforts by the European Central Bank to inject liquidity into the financial system. According to analysts, investors predict this won’t stem the debt crisis. The Euro was also weighed down by disappointing economic metrics, which showed that German retail sales fell in January, fueling worries over the region’s biggest economy. The 17-nation currency continued to spiral downwards after Spain announced it was raising its budget deficit target, and as reports revealed the ECB loaned 529.5 billion Euros to 800 banks. The Swiss Franc also declined against the U.S. Dollar on the belief the Federal Reserve won’t institute further stimulus and as investors continue to worry about the crisis in the Euro region. The British Pound trimmed away last week’s gains versus the greenback on renewed worries over the E.U. crisis and on diminished anticipation of more quantitative easing in the U.S. The Sterling advanced against the Euro as the European Central Bank awarded a record amount of cash in the form of 3-year loans to regional banks, thus raising the supply of the shared currency.
Japan’s Yen traded at a nine-month low versus the U.S. monetary unit after the release of data indicating that the country still faces the possibility of deflation, a fact that prompted the Bank of Japan to reiterate its pledge to maintain loose monetary policies.
Lastly, The Australian and New Zealand Dollars declined against the greenback as concerns over the Euro-zone’s debt crisis raised demand for refuge currencies.
EUR/USD- Euro Declines Despite ECB Initiative
The Euro sustained a big drop on Friday versus the U.S. Dollar as investors grew concerned the crisis in the Euro-zone is worsening. The shared currency was also weighed down by lackluster metrics revealing a drop in German retail sales, and a drastic increase of the unemployment rate for the entire region. Investors will continue to monitor the developments in the E.U. as they await for an interest rate decision from the ECB as well as Non-Farm Payroll reports out of the U.S.
GBP/USD- Fears Weigh On Pound
The Sterling erased last week’s gains against the U.S. currency on concerns the Euro-zone’s debt crisis will affect the entire region. Risk appetite was further affected after Spain increased the budget deficit target to 5.8 percent of GDP. The Sterling declined further as Federal Reserve Chairman Bernanke stated that the improvement in the labor sector was a sign the country did not need further quantitative easing for now. The Sterling strengthened versus the Euro after the Bank of England’s Governor, Mervyn King, mentioned that policy makers would keep a close eye on upcoming economic releases to decide on whether the central bank needs to increase its asset purchases. The Bank is expected to make an announcement on Thursday in regards to interest rates.
USD/JPY- Deflation Risks Persist In Japan
The U.S. currency traded at a nine-month high against the Yen on speculations the U.S. Federal Reserve will not employ further stimuli for now. Meanwhile, the Bank of Japan’s Governor, Masaaki Shirakawa, stated that the bank is committed to maintaining a loose monetary policy to achieve a 1 percent increase in CPI. His remarks were fueled by reports showing that consumer price inflation dropped by an annualized 0.1 percent in the first month of the year, signaling that the country still faces the risks of falling into deflation.
USD/CAD- Global Growth Boosts Loonie
The Canadian Dollar gained against its American counterpart on speculations the improvement in global growth will benefit the country’s exports. The Loonie extended gains versus most of its counterparts after crude oil, its biggest export reached the highest price in close to 4 years. The Canadian Dollar also strengthened following stellar economic data out of the U.S. showing that jobless claims declined and consumer confidence increased. Canada’s central bank will make a decision on interest rates this Thursday. According to analysts, there’s a possibility officials will raise the costs of borrowing money. The benchmark rate has stayed at 1 percent since September of 2010.
Today’s economic calendar shows that Switzerland and the E.U. will report on Retail Sales. The U.K. will release data on Services PMI. The U.S. will announce the ISM Non-Manufacturing Index. And Australia will issue the Current Account, RBA Rate Statement and Interest Rate Decision.