U.S. consumer sentiment in January hits lowest in over a year
Markets position for aggressive action from Bank of Japan
NZD knocked by lower-than-expected inflation
USD – The USD rose versus most major peers as a slew of economic data outside the US came in lower than expected. Lackluster data among the developed countries has created uncertainty in the market, driving investors to seek the safety of the US dollar. Meanwhile, US consumer sentiment unexpectedly deteriorated for a second straight month to its lowest in over a year in January, according to the University of Michigan Preliminary Consumer Sentiment Index. Many consumers are citing the ongoing budget debate in Washington as a reason for lower consumer sentiment. The sharp drop in sentiment over the last two months coincides with rancorous federal budget negotiations that have led to higher taxes for many Americans. Just weeks after the fiscal cliff was averted, President Barack Obama and Republican lawmakers are expected to enter another tough round of negotiations over spending cuts, which could dent consumer confidence still further.
EUR – The euro fell versus the US dollar after a European Central Bank official said the ECB doesn’t have a view whether banks should repay funds when the possibility comes up, dampening bets short-term interest rates will rise. The single currency dropped from near February 2012 highs after ECB Executive Board member Benoit Coeure said he doesn’t expect repayments to affect the Eonia rate, an overnight interest rate for the interbank market. Concerns about global growth also weighed on the euro after China, the world's second largest economy, reported slowing growth in 2012. The European currency could remain under pressure if concerns about global growth continue.
GBP – Sterling fell to an eight week low against the US dollar and was down near a 10-month trough versus the euro after weaker-than-expected retail sales data added to concerns about a floundering British economy. Sentiment towards the pound has also taken a knock lately due to uncertainty over Britain's relationship with the European Union, the country's biggest trading partner. The weak UK data exacerbated the pound's drop. Retail sales in December fell 0.1 percent from a month earlier, compared with a rise of 0.2 percent forecast. For the year, sales rose just 0.3 percent, its smallest rise since April and falling well short of forecasts of a 1.1 percent rise. The data highlights that there is still weak growth in the UK and as well as uncertainty related to monetary policy.
JPY – The Japanese yen dropped for a second straight day against the US dollar, trading within striking distance of a 31-month low as the market positions itself for aggressive action from the Bank of Japan next week. The yen has lost 3.7 percent in value against the US dollar so far this year and most strategists believe the greenback is poised to continue appreciating if the BOJ early next week takes steps beyond market expectations in an attempt to stave off deflation.
Commodity Currencies - The Australian and New Zealand dollars fell against the US dollar but climbed to fresh four year peaks on the yen as Japanese officials talked down the currency while piling pressure on the BoJ for ever more radical reflationary policy. Meanwhile, China -the world's second largest economy, reported a y/y growth of 7.9% in Q4 2012, supporting the Australian dollar from sliding further as China is its top export market. The kiwi fell broadly, hitting a near two-week low versus the Australian dollar, while it sank to a three-week low versus the euro after data showed New Zealand CPI fell 0.2 percent in the last three months of 2012, correcting forecasts for a slight rise.
The Canadian dollar fell the most in six months after data from China suggested demand for commodities may not increase apace with general economic growth. The CAD also declined against the majority of its most-traded peers along with the Australian dollar and the South African Rand, other commodity currencies, after China’s investment in fixed assets fell in December from the month before.
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