USD - A volatile past week, notwithstanding, America's currency continues to build upon its gains from recent weeks, as markets contemplate the risk ramifications of what promises to be another volatile week, laden with key economic data releases. Amid a backdrop of improving sentiment in equity markets (DJIA: 10,380.00 and S&P: 1,111.00 at time of printing), the USD has managed to hit new multi-month highs vis-à-vis its major world counterparts this morning, save the JPY-a currency that has also been benefiting from safe-haven flows. Despite steady improvements in economic data since the beginning of the year, last week's precipitous worsening of Consumer Confidence (46.0 in Feb. vs. 56.5 prior), New Home Sales (309K in Jan. vs. 354K exp.), and Initial Jobless Claims (496K for 2/20 vs. 460K exp.) cast an ominous shadow upon the nascent economic recovery, leading some analysts to question the sustainability of recent growth. Nevertheless, an improvement in Durable Goods Orders (3.0% in Jan. vs. 1.5% exp.), an upside surprise in Q4'09 GDP (5.9% vs. 5.7% prior), and a robust showing in the Chicago PMI (62.6 in Feb. vs. 597 exp.) helped mitigate concern about a possible double dip recession. With another week chock-full of key data releases, markets will be intently focused on garnering any meaningful insight as to the health of the world's largest economy and the direction of its currency. This morning's lackluster showing in Personal Income (0.1% in Jan. vs. 0.4% exp.) and ISM Manufacturing (56.5 in Feb. vs. 58.4 prior) helps to set the tone for this week, as markets wait with bated breath for the culmination of risk sentiment manifested in a triad of key labor reports: Initial Jobless Claims, Non Farm ayrolls, and the Unemployment Rate announcement.
EUR - The euro remains under pressure near 10-months lows vs. the dollar on continuing overhang of Greece's budget worries. The single currency fell to lows at 1.3460 despite signs that the E-16 continues on the path to recovery. The Eurozone Manufacturing Purchasing Manager's Index rose
to 54.2 in February while the unemployment rate improved to 9.9%. Addressing Greece's budget crisis, the European Union urged Greece to take additional austerity measures today to shore up its shaky fiscal situation. Greek Prime Minister George Papandreou is scheduled to meet with German Chancellor Angela Merkel on Friday to discuss what she called the euro's most difficult phase since its creation. The euro is ikely to remain pressured awaiting details of a Greece rescue package.
GBP - Downward pressure on GBP continues to build, giving the impression that the next crisis could be brewing in the UK. On a year-to-date basis, it is now the worst performing primary currency, having lost 8.0% against the USD and 2.6% against EUR. The GBP is currently trading at 1.4970-near levels not seen since 2002 - against the USD following more disappointing U.K economic data on Friday. An unexpected 1% decline in the February Nationwide House Price Index coupled with a larger than forecast -3.3% (vs. exp. -3.1%) annualized GDP figure triggered the GBP/USD slide. On Thursday, BoE is expected o leave rates on hold at 0.50%.
JPY - The yen weakened on rising political pressure imposed upon the Bank of Japan (BoJ) to fight deflation. Deflation is a debilitating phenomenon resulting from consumer restraint on spending for fear that prices will further decline, forcing businesses to continue to lower prices. Financial Services Minister Shizuka Kamei said the Central Bank should underwrite public debt to finance government spending, against which the BoJ is strongly opposed. Japan is expected to remain in a deflationary environment until March 2012. Core CPI fell 1.3% for the year through anuary, marking the 11th straight month of annualized declines.
CAD - The loonie saw a heavy reversal last week trending 2.9% off recent highs to reach 1.0676 vs. USD-its weakest level since 2/10-before reversing those losses and regaining 1.5% for a close to last week's session of 1.0514. Crude oil saw a 3.9% range last week mirroring the loonie as it peaked above the psychological $80.00/bbl barrier before relinquishing all the way back down to $77.15/bbl to close last week. Natural gas continued a decline that began mid-month by giving up 4.3% ($4.74) more as it continues to trade below its earlier breach of $5.00/GJ. Canadian stocks fell last week, as well, led by producers of oil and gold, as commodity prices weakened on declining confidence in the economy.
MXN - The peso responded in kind to its other commodity based currencies by giving back, mid-week, nearly 1.5% of its recent gains vs. the USD for a high of 12.9316 before rebounding back down to 12.7480. Y/Y Q4'09 GDP showed marked improvement over Q3'09 of last year for a reading of -2.3% vs. prior -6.2%. Retail Sales showed signs of recovery, as well, jumping to 1.6% for Dec. 09' vs. -1.5% the previous month. Unemployment, however, jumped to 5.87% in January vs. 4.8% the previous month. Mexico's central bank announced that it will buy as much as $600M a month in the currency market in a push to boost foreign reserves after last year's peso tumble, leading policy makers to turn to the International Monetary Fund for help. Banco de Mexico will auction options allowing investors to sell up to $600M a month, a mechanism the ank used from 1996 to 2001 to accumulate reserves.
AUD - The Australian dollar fell from recent highs today above $0.90 after Chinese manufacturing data slipped more than expected. AUD fell to lows at $0.8936 after China, one of Australia's top trading partners, reported its manufacturing sector grew at a slower pace in February. However, losses were limited ahead of a possible Royal Bank of Australia interest rate hike tomorrow. Markets are forecasting a 60% chance of a 0.25% rate increase to bring rates to 4%.