Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

USD – The dollar strengthened against most of its major counterparts after the release of strong data out of the U.S.  Jobless claims unexpectedly fell by 10,000 to 332,000 last week, while the current account deficit narrowed in the fourth quarter.  The U.S. current account trade deficit narrowed in the final three months of last year to $110.4 billion, down 1.8 percent from the previous quarter.  The improvement reflects growth in Americans' earnings on their foreign investments.  Also released was a Labor Department report which showed wholesale prices climbed 0.7 percent in February, the most in five months.  With an improving U.S. economic picture and a rising 10 year Treasury yield, traders are focusing on the potential that the Federal Reserve might look towards exiting their monetary easing strategy earlier than expected. 

EUR – The euro fell 0.2 percent and touched its weakest level since Dec. 10 after the release of euro zone employment figures.  Euro zone unemployment fell by 0.3 percent in the last three months and hit its’ fourth consecutive quarterly fall in the job creation figure.  The unemployment figures highlight the challenges that euro zone leaders face in reducing record unemployment.  The figures stress the shrinking euro zone’s working population, with only Germany managing an increase in employment creation.  The market will look towards a two day summit in Brussels, where euro zone leaders will gather to discuss economic growth.  Analysts are also starting to price in the potential for an ECB rate cut to below 0.75 percent later in 2013 to try to revive the stagnant economy.  In the meantime, look for political uncertainty in Italy and a likely bailout for Cyprus to pressure the single currency.

GBP – Sterling pushed higher against the dollar, climbing above a 2-1/2 year low as traders used the opportunity to take profits on their positions.  With little data out of the UK, analysts will most likely turn its attention to the possibility of a third recession in the UK.  Given the fact that the pound has already slid 8 percent this year against the dollar coupled with the credit rating downgrade last month, the currency remains very vulnerable.  Traders will also look towards any austerity measures and the potential for further easing from the BOE for further direction with the pound.

JPY – The dollar strengthened against the yen, which fell after traders took advantage of yen levels seen earlier in the week.  As expected, BOJ nominations were approved by the Lower House.  Koichi Hamada, PM Abe’s economic advisor stated that USD/JPY between 98.00-100.00 was a good level.  He also added that the inflation target was important to control risks to the upside as well as a means to fight deflation.  With little data out of Japan, look for the yen to continue to weaken as expectations of aggressive policy easing from the Bank of Japan will continue to bolster the dollar.  

Commodity Currencies – The Canadian dollar was slightly stronger against the US dollar, even as better-than-expected U.S. jobless claims supported the greenback against a broad range of currencies.  The Canadian currency also emulated the greenback and touched its strongest level against the euro since January 23.The Australian dollar strengthened against the US dollar after shockingly strong employment blew away expectations with a rise of 71,500 in February, the biggest gain since mid-2000.  The data led the market to almost abandon any chance of further rate cuts, sending bonds yields flying to the highest since April last year.  This was in blunt contrast to events in New Zealand, where the central bank suppressed speculation that it may raise rates this year, lifting the Aussie to a 9-week peak on the kiwi.  The New Zealand currency weakened against the US dollar as the Reserve Bank of New Zealand surprised a hawkish market by saying it did not expect to raise interest rates this year. RBNZ governor Graeme Wheeler said the outlook was "finely balanced" amid a strong housing market, a worsening drought, a high currency and low inflation.

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