• Dollar falls short of 4-year highs against JPY
• GBP soars on positive industrial data; gain seen capped by recession worries
• NZD poised to move higher
USD – The USD remains broadly weaker against the majors on the back of last week’s disappointing jobs data which raised concerns that the pace of recovery in the American labor market has slowed down. Fed policy remains driven by the outlook for the US labor market, giving forward guidance on interest rates and setting the pace of QE. Focus has now turned to US earnings, the release of the FOMC’s minutes and the US budget tomorrow.
EUR – The euro has rebounded on the back of recent dollar negative economic data which took the spotlight from Europe’s fiscal concerns. The single currency rose to 3-week highs against the USD. Concerns about the euro zone - the bailout for Cyprus, political uncertainty in Italy and Spain's struggling fiscal and economic conditions - seem to have taken a back seat for now, strategists said. Rating's agency Moody's warned that prospects of Spain missing its public deficit target this year could result in its sovereign credit rating slipping below investment grade.
GBP – The pound was able to capitalize on data showing industrial output rose by 1.0 percent in February, exceeding forecasts of a 0.3 percent rise and bouncing back after a steep decline in January. This news led to some cautious optimism that the UK economy may be able to evade recession, bringing the pound within striking distance of Fridays 1½ month highs against the USD. Gains were capped by data showing the country's trade deficit widened more than forecast. Analysts said despite the improvement, investors would be wary of buying sterling aggressively before the initial estimate of first quarter British gross domestic product on April 25, with the country teetering on the edge of its third recession in less than five years.
JPY – The Japanese yen edged up from 4-month lows against the US dollar as investors booked profits on its sharp rally, but remains on a weakening trend following the Bank of Japan’s aggressive monetary easing plan announced last week. The commitment by the BoJ to inject about $1.4 trillion into Japan’s economy began Monday, causing option barriers at the psychologically important 100 level to become closer to reality. Japan’s Finance Minister Taro Aso stated that the yen was correcting itself from its previous “excessive” rise and reiterated that the monetary easing plan’s aim is to beat deflation and not to weaken the yen. Although resistance is strong at the 100 mark, analysts believe a break above looks inevitable, with moves to the 105 target not far behind.
Commodity Currencies – Rising commodities prices and ongoing JPY-funded carry trade demand boosted the Australian and New Zealand dollars this morning. The Antipodean currencies seem poised to move higher still with Japanese investment demand high and China growth concerns dissipating on the back of soft inflation data released today. Markets are indicating that the NZD is poised to make a significant upward move against the USD in coming weeks, capitalizing on recent 18 month highs against the USD. While New Zealand Finance Minister Bill English has described the exchange rate as "a real headwind to rebalancing the economy," he has acknowledged there is a limit to what New Zealand can do about it, leaving the door open for traders to make a move. As the U.S. Federal Reserve will likely keep interest rates near zero until unemployment drops to 6.5%, the Reserve Bank of New Zealand recently commented that strength in housing prices was starting to cause concern and could prompt an interest rate rise. Already offering an attractive yield differential over U.S. rates, the possibility of a hike in New Zealand later in the year could underpin demand for the kiwi. The Canadian dollar benefited as investors looked more favorably at riskier assets but movements were limited by a lack of major news or economic data.
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