Overnight, the US dollar weakened against a basket of currencies but recouped those losses after better than expected US housing starts report. The Commerce Department reported that US housing starts rose 22.2% in February from the prior month. In the past week, financial institutions such as Citigroup and Bank of America have reported a profitable first quarter, boosting investor risk-appetite in a glimmer of hope that the worst was somewhat over. However, data released by American Express and Citigroup showed US credit card defaults rose to a 20-year high, wavering investors’ optimism.
The euro strengthened against the dollar overnight as Germany’s economy reported better than expected investor and analyst optimism. A monthly poll by the ZEW economic institute in Germany showed analyst and investor sentiment rising to -3.5 in March from -5.8 in February.
As a number of central banks cut official rates close to zero percent to stimulate their economies, ECB policymakers indicated there was little room for them to take interest rates to zero as it would actually reduce the effectiveness of monetary policy.
The British pound weakened against the dollar and euro as investor enthusiasm for risk slightly waned. To add further salt to the wound, a government data showed UK house prices fell 11.5% on the year in January after a 10.2% decline in December.
The Japanese yen weakened against the dollar as Bank of Japan took an experimental step with unconventional policy to stabilize their financial system. In an attempt to prevent lending drying up to companies, BoJ offered 1 trillion yen ($10.2 billion) in subordinated loans to Japanese banks to bolster their depleted capital.
The Canadian dollar remains little changed against the US dollar. In data released by Statistics Canada, the labor productivity of Canadian businesses fell 0.2% in the fourth quarter of 2008 and Canadian manufacturing sales fell 5.4% in January as the market for autos and auto parts dwindle.
The Australian and New Zealand dollar have held on to their rally against the US dollar as investors displayed more comfort towards riskier investments. As stocks markets and commodities such as gold and oil rally, the Aussie and kiwi strengthen against the greenback.
The Mexican peso strengthened against the dollar after a long weekend, lifted by hopes that the US recession may be close to bottoming.
10-Year Treasury Note Yield: 2.933%
Dow Jones Industrial Average: 7,222.31 + 2.55