- USD strengthened across the board as Cyprus’ banks announce capital controls
- EUR slipped to its lowest level in four months ahead of the reopening of Cyprus banks
- Commodity currencies fell as assets and gold prices gained from safe-haven flows
USD – The US dollar is broadly stronger across the board as the deal to avert Cyprus’ collapse created public instability in the region after Cyprus’ financial institutions announced capital controls to prevent a bank-run. Domestically however, contracts to buy previously owned US homes fell by 0.4% to 104.8 in February. The index released by the National Association of Realtors suggested that shortage of properties was still a concern and contracts last month remained at the second highest level in nearly three years. Pending home sales were up 8.4% compared to February last year. In all, the greenback has largely benefited from a global risk aversion which has pushed the dollar index up 0.4% and gold prices up 0.2% from yesterday’s close.
EUR – The euro plunged to its lowest level against the dollar in over four months, weighed by weak Italian data and concerns that Cyprus' recent rescue deal has yet to win public approval. Cyprus is expected to stop people from taking their money out of the country but will not restrict dealings at home as it tries to avert a run on its banks after agreeing a tough rescue package with international lenders. Cypriots have taken to the streets of Nicosia in thousands to protest against a bailout deal that will push their country into an economic slump and cost many their jobs. Meanwhile, the region’s second largest lender, Cyprus Popular Bank CPBC.CY, is to be shut down, and accounts of under 100,000 euros will be moved to the Bank of Cyprus. Deposits at both banks over the 100,000-euro mark, will remain frozen as banks are due to reopen tomorrow after nearly two weeks. Also stacking up against the EUR, is the first fall in the Eurozone’s economic confidence, after four months of gains, in Italian manufacturing and retail sales in March and a confirmation that France's economy contracted at the end of last year.
GBP – Sterling dipped against the dollar after data confirmed the British economy contracted in the final quarter of last year and that the current account conditions worsened. The British economy shrank by 0.3% on a quarterly basis while the annual figure was revised down. Data also showed that Britain's current account deficit narrowed less than expected, which pushed sterling lower. Britain's economy contracted at the end of 2012 in line with the previous estimate as industrial production posted its biggest quarterly fall since early 2009. The Office for National Statistics reported Britain's GDP dropped 0.3% on the quarter in the October-December period. The contraction in output was spurred by a 2.1% decline in industrial production, which was the biggest fall since the first quarter of 2009. With the release of UK’s current growth reports, many analysts are leaning towards the BoE to ramp up its stimulus program to support its faltering economy. The GBP/EUR has benefited from flows out of Europe, but weaker fundamentals and global growth uncertainty has weighed on the GBP/USD.
JPY –The Japanese yen held steady against the US dollar despite the expectations of stronger monetary stimulus under new central bank leadership following the BOJ's policy meeting next week. This has led to many investors believing that the BoJ’s threat to further weaken its currency has ran its course and that much of the USD/JPY gains have already been priced in. With the limited amount of new headlines from Japan, the yen looks to be stabilizing slightly firmer against the dollar.
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Commodity Currencies – The Canadian dollar strengthened against the US dollar after Canadian data showed the country's annual inflation rose quicker than expected in February, increasing to 1.2% from 0.5% in January. The annual core inflation rate was 1.4%, up from the 1.0% jump the previous month. The Australian and New Zealand dollars are lower against the greenback as a wave of risk-off flows swept over the markets on further fallout from Cyprus. The AUD and NZD both fell by 0.4% from yesterday’s close against the USD.
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