• Unexpected drop in retail sales pressures U.S. dollar
• EU Finance Ministers approve Cyprus bailout and loan extension for Portugal and Ireland
• NZD remains at near record highs despite plummeting gold prices
USD – Declining retail sales data for March, falling 0.4%, released today was just the latest in recent economic news to be released in the past week to indicate the U.S. was still in an economic slump and pressured the dollar lower. The unexpected drop in U.S. retail sales last month, contracting for the second time in three months, reinforced expectations the Federal Reserve will keep its monetary policy loose to support the U.S. economy. The Fed's bond-buying program, which equates to printing money, has been a major headwind for the dollar in recent years. Minutes from recent Fed meetings suggested some Fed policymakers expected to taper the pace of asset purchases sometime this year.
EUR – The euro held fast to its recent gains, well supported by investors seeking higher yields. European Union finance ministers approved a 10 billion euro bailout package for Cyprus and agreed to extend the maturities of emergency loans extended to Ireland and Portugal by the European Union by seven years to smooth out the two countries' return to economic health
GBP – Sterling steadied near a seven-week high against the dollar, driven by demand for higher-yielding alternatives to the yen since the Bank of Japan unveiled its radical stimulus program last week. The pound also traded within sight of the previous day's 3-1/2 year high against the yen, having risen more than 9 percent versus the Japanese currency since the bold easing steps were announced. Though the BOJ move may have spurred investor demand for higher-yielding assets, the benefits to sterling may only be temporary as many investors are still nervous about the fragile British economy and the possibility of more monetary easing from the BoE in coming months, when incoming governor Mark Carney takes the helm in July. Investors are also wary of buying sterling before the release of the initial official estimate of UK first quarter gross domestic product data on April 25.
JPY – The yen rallied from multi-year lows against the majors, though any rebound should be short-lived in light of the Bank of Japan’s aggressive monetary easing last week. The yen rally has slowed near the psychologically important 100 level, with traders citing hefty option barriers and dollar selling pressure from Japanese exporters, though traders note it's only a matter of time before the dollar rises above the 100 yen mark. BOJ Governor Haruhiko Kuroda said today that he had taken all necessary steps to meet its 2% inflation target in two years and will try to minimize volatility in the Japanese government bond market caused by its massive bond buying. The BOJ's steps have prompted many analysts to revise up their forecasts for the dollar's strength against the yen to the 109-110 levels in 12 months.
Commodity Currencies – The New Zealand dollar neared 2-year highs against the USD – with record highs only a breath away, while both antipodean currencies held at multi-decade highs against in trade-weighted terms as the yen continued to crumble. The NZD was underpinned by upbeat retail sales, housing and manufacturing data as well as a warning by the Reserve Bank of New Zealand it may have to hike interest rates to cool an overheating housing market. The Canadian dollar weakened from yesterdays’ 2-month highs on the back of soft U.S economic data.
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