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

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  • IMF cuts forecasts for global growth
  • U.S. consumer price data falls to 4-month lows
  • Euro shrugs off weak ZEW data
  • Plummeting gold prices weaken commodity currencies

 

USD –   The International Monetary Fund on Tuesday shaved its projections for global economic growth for both this year and next due to sharp government spending cuts in the United States and the latest struggles of recession-stricken Europe. The IMF cut its 2013 forecast for global growth to 3.3 percent, down from its projection in January of 3.5 percent. It also trimmed its 2014 forecast to 4.0 percent from 4.1 percent. "Global economic prospects have improved again, but the road to recovery in the advanced economies will remain bumpy," the IMF said in its periodic World Economic Outlook. Meanwhile, the dollar weakened broadly across most major currencies as U.S. consumer prices fell in March for the first time in four months. In addition, the cost of gasoline tumbled, signaling muted inflation pressures, which could bolster the case for the Fed to remain on its very easy monetary policy path, despite divisions among policymakers to taper-off the asset purchasing program.

EUR – The euro continued its recent upward trend, shrugging off data showing a sharp fall in German ZEW sentiment in April, climbing to 5-week highs against the USD. The single currency remains well supported by investors and central banks seeking higher yields.  Spillover effects from the decline in gold are opening the way for euro to test the 1.3270/1.33 targets again as investor appetite for riskier assets have waned.

GBP – Sterling remained rangebound versus the dollar, though it was under pressure against its European counterpart, falling to 1-month lows. British consumer price inflation remained steady at 2.8%, its highest level since last May, while lower oil prices suggested future increases in inflation may be muted. The pound remains vulnerable to concerns over global growth and upcoming data that may highlight Britain's own economic weakness. 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 Japanese yen weakened, giving up most of its gains garnered yesterday.  The move came after the announcement that Japan’s trade deficit narrowed with the current account balance increasing to a record JPY61.4 trillion, reaffirming that the BOJ’s easing plan is starting to work.  The IMF also revised its forecast for Japan, highlighting the BOJ’s aggressive new monetary stance, stating that inflation in Japan will likely rise above zero later this year and temporarily push higher in 2014 and 2015.  Look for the yen’s recent rebound to be temporary given the more aggressive easing implemented by the BOJ with many analysts still expecting a near‐term test of 100. Investors will also closely monitor gold and commodity prices since another plunge could renew demand for the most liquid currencies such as the dollar and yen.

Commodity Currencies - Stronger-than-expected Canadian manufacturing data released today kept the loonie near session highs against the USD. The Australian and New Zealand dollars recovered some of yesterday’s losses, though markets remained on edge. Investors dumped riskier assets as disappointing growth data from China hit commodities and stocks, while gold suffered its worst two-day loss in 30 years. Minutes from the Reserve Bank of Australia’s (RBA) April meeting showed the central bank felt the current level of interest rates was low enough to spur growth. Yet, it noted that headwinds such as cooling mining investment was likely to persist.

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