USD is mixed after housing starts and PPI
JPY is stronger on resolve for further easing
Commodity Currencies lower on weak data
USD –The dollar is little changed against the euro and slightly weaker against the yen after the release of mixed data out of the U.S. Housing starts fell 8.5 percent fall last month after surging 15.7 percent the prior month, the Commerce Department reported. The report also stated that new-home construction came in at a seasonally adjusted annual rate of 890,000 last month after jumping to an annual rate of 973,000 in December, the best month for new-home starts since June 2008. Producer Prices also rose 0.2 percent month over month during January, below expectations of a 0.3 percent rise, but improved on December’s negative 0.2 percent.
The market will look towards tomorrow’s release of consumer prices, where expectations remain for a rise of 0.1 percent month over month, as well as, initial jobless claims. Also scheduled for release is the all-important Philadelphia Fed. Manufacturing survey which should indicate moderate growth.
EUR –The euro held close to current levels after the release of consumer confidence figures, which came in slightly worse at negative 23.6 versus expectations for a negative 23.1.
The market has turned its attention to the upcoming Italian election along with France’s announcement that it will miss its 3 percent deficit target this year. Also pressuring the single currency is talk that Spain is looking to cap the region's bond sales yield premium at 100bps. The move could cause some regions to request additional aid. Chancellor Angela Merkel commented that states shouldn’t be an influence over exchange rates, adding that the euro trading between $1.30-$1.40 was to be expected.
The market will look towards PMI figures out of the euro zone tomorrow along with GDP and business climate figures from Germany on Friday for further direction with the single currency.
GBP –Sterling fell to an eight and a half month low against the dollar and a sixteen month low against the euro after the BOE minutes signaled the potential for further monetary stimulus. The minutes unexpectedly showed three out of the nine BoE policymakers voted for an increase in asset purchases under the bank's quantitative easing program. The Monetary Policy Committee also considered cutting interest rates.
With further monetary easing likely, look for sterling’s outlook to remain bearish, potentially testing additional significant lows.
JPY – The yen held on to its gains after Bank of Japan policymaker Yoshihisa Morimoto reassured markets of the central bank's resolve for further monetary easing. Morimoto reiterated that “the BOJ will continue to promote powerful monetary easing through steps including massive government bond purchases."
With the world's third-largest economy in recession and along with Prime Minister Shinzo Abe continuing to pressure the central bank to take bolder action to revive growth, look for the yen to weaken further.
Commodity Currencies –The Canadian dollar weakened against the greenback and touched a near seven-month low in early trading today on concerns over weak Canadian economic data which showed shrinking wholesale numbers and dropping home prices. Housing market activity in the country has been slowing since the middle of 2012, falling 0.3 percent in January month over month. The extended losses to the currency has reached its weakest level since last July when it traded above USD/CAD 1.02. The Australian dollar continued to come under pressure against the dollar after the dovish tone in the RBA minutes released yesterday, which left the door open for further rate cuts should the need arise. Further cementing the drop in commodity currencies was the price of gold, which dropped 3.8 percent in the past week, while copper prices fell 2.33% from yesterday’s levels.
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