Sterling recovers from near 5-month low on BoE minutes, UK jobs data
Yen’s three-day gain best since June 2012
Bank of Canada left interest rates unchanged; Canada’s dollar at two month low
USD- The US dollar weakened modestly against most of its major peers but strengthened against the euro. The release of Housing Price Index figures disappointed, unchanged from October, given that market consensus was for a rise to 0.7% in November. Home prices have been climbing as growing employment and low borrowing costs fuel demand. The Republican-led House of Representatives plans a vote today to suspend the US’ borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts.
EUR- The euro dropped against the USD dollar on technical trading and as some traders also noted Russian selling of the euro zone common currency. However, overall sentiment towards euro zone assets continues to improve as investors position themselves for euro-area banks to repay part of the loans taken from the European Central Bank last year. While yesterday’s strong German economic data lent some support to the euro, strategists said if the euro zone's flash Purchasing Managers' Index figures due on Thursday beat forecasts, the euro could break above the $1.34 level.
The single currency could also rise before an announcement on Friday on the size of next week's first repayments of three-year loans taken by banks from the ECB a year ago.
GBP- Sterling recovered from a near five-month low against the US dollar after better-than-expected UK jobs data and Bank of England minutes that cast doubt on the need for more monetary easing. The pound had fallen earlier during a speech in which Prime Minister David Cameron pledged a referendum between 2015 and the end of 2017 on whether Britain should stay in the European Union. Talk of a EU exit is likely to limit sterling gains as it could hurt Britain's long-term investment outlook. Uncertainty over Britain's relations with the EU and a bleak outlook for the UK economy had weighed on the pound recently. Bank of England Governor Mervyn King said yesterday that credit conditions have improved, and “should improve further as the impact of the FLS kicks in.”
JPY- The Japanese yen edged higher against the US dollar and euro, gaining for a third straight day, still benefiting from the Bank of Japan's monetary easing despite falling short of expectations. The yen, on the other hand, has risen 1.9 percent versus the dollar the last three days, the best three-day gain in seven months. The move to end years of economic stagnation, which included a pledge to double its inflation target to 2 percent --its boldest action yet, has already been priced in by markets and fell short of lofty expectations for a faster, substantial stimulus boost.
Commodity Currencies-The Australian dollar took a hit against the US dollar after surprisingly benign inflation suggested there was still plenty of scope for further interest rate cuts, though investors still doubt a move will come next month. The Aussie eased against most major currencies after key measures of underlying inflation rose by less than expected to be in the lower half of the Reserve Bank of Australia's (RBA) target of 2 to 3 percent. The New Zealand dollar also gave back a little of its’ recent hefty gains on the yen, but firmed on the US dollar and euro. The Canadian dollar is lower today after the Bank of Canada left interest rates unchanged at 1%. Moreover, the central bank revised its outlook for interest rates, pairing back expectations for a rate hike by stating the time is “less imminent than previously anticipated.” The Canadian currency is lower on the announcement and is testing par (1 for 1) versus the US dollar. Today’s announcement is dimming prospects for CAD strength in the near term as prospects for further rate increases which were anticipated later this year appear further away.
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