USD is mixed after G-7 addresses currency wars
JPY weakens after G-7 and Outlook
Commodity Currencies lower on weak data
USD – The dollar strengthened against the yen and sterling, but lost ground against the euro after the release of the Group of Seven (G-7) industrialized nations, addressed the perceived currency wars. In the statement issued, the group called for countries to refrain from competitive devaluations, reacting to concern that the monetary easing policy of Japan, which continues to pressure the yen, has triggered further currency manipulation. In other U.S. news, the NFIB Research Foundation’s business optimism index released at 88.9 basically in line with the consensus of 89.0, cementing that small business are optimistic about future growth. The market will look towards retail sales and business inventories due out tomorrow, where it’s expected that retail sales will come in at 0.5 percent and business inventories up 0.3 percent. Analysts, however, will be closely watching President Barack Obama’s first State of the Union Address, which will get under way tonight. This is the first state of the union address since being reelected to office in November. The market will look towards direction into the state of the U.S. economy and any policies that will further growth in the U.S. jobs sector.
EUR – The euro strengthened against the dollar, yen and swiss franc after the Group of Seven countries (G 7) released a statement on currency manipulation. EUR/CHF pushed even higher after Swiss National Bank chief, Thomas Jordan stated that a cap on the franc would remain in place and that currency easing is expected. Traders will look towards European Central Bank President Mario Draghi who is set to speak with Spanish lawmakers later today. With a number of European leaders starting to express concern over the single currency’s strength, in turn hurting an economic recovery, the market will focus on any commentary tied to the ECB's current policy strategy. With concerns about a possible bailout for Cyprus coupled with the upcoming Italian elections the end of the month, look for the euro to hold below 1.36.
GBP – Sterling touched a six-month low against the dollar and remained weak against the euro despite UK inflation holding at 2.7 percent in January, unchanged for the fourth month in a row and above the Bank of England’s (BOE)target rate of 2.0 percent. The market will look towards quarterly inflation data due out tomorrow to further cement the UK’s economic outlook, but with a flat inflation picture, the figure will most likely remain unchanged. Sentiment still remains weak, however, with the BOE releasing a statement last week saying risks to the UK economy continue to be weighted to the downside. With the pound falling 4 percent against the dollar already this year, look for further losses amid the growing concern over additional asset purchases and monetary easing later this year.
JPY – The yen weakened against the dollar and euro holding near recent multi-year lows after the Group of Seven countries (G 7) issued a very bearish statement affecting USD/JPY. The G7 stated that it remained committed to market-determined exchange rates and that monetary policies should not be aimed at devaluing currencies. Japan’s Finance Minister Aso commented that the yen weakness from 78 to 90 in recent months was steeper than intended. Also commenting further was U.S. Treasury Under-Secretary for International Affairs Lael Brainard, who stated that the United States supports Japanese efforts to end deflation. With the dollar rising 8.5 percent against the yen so far this year, look for Japan’s currency to remain under pressure and weaken further as the Japanese government continues an aggressive easing of monetary policy to tackle persistent deflation.
Commodity Currencies – The Canadian dollar weakened against the dollar, hitting two week lows, pressured in part by recent, unexpectedly weak Canadian economic data. Last Friday a surprise in job losses pressured the loonie as statistics Canada reported that jobs fell in January for the first time in six months, dropping by 21,900 jobs, following December’s revised gain of 31,200. The market will look towards comments due out later today by Bank of Canada governor Mark Carney who will be addressing the Canadian parliamentary committee for further direction into the currency, but expectations remain for the currency to remain weak in the short term. The Australian dollar weakened against the dollar and yen. The move came with steady selling by Japanese investors who have been unwinding Aussie position and buying euro. The market will look towards consumer inflation data due out in Australia and retail sales in New Zealand due out on Thursday for further direction into the Aussie and Kiwi currencies.
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