The overnight currency sessions were littered with significant economic data but it was the ongoing influences that drove the majority of market direction. Greece's austerity measures still remain on the table with European finance ministers to hold a teleconference with Greece in regard to the bailout fund and if they are making enough cuts and the surety of the cuts being made. Greece's long history of broken promises on reform and the impending election is weighing on the European Union. The European session however was surprisingly positive following yesterday's rating cuts and warnings from Moody's with the Euro trading through 1.32 USD as a confident Italian bond sale helped illustrate that the Greek issues may be localised. These gains were then quickly unwound following the US retail sales print a few hours later. US retail sales came in at 0.4% versus median expectation of 0.8% and this drove strong US dollar demand for the rest of the night.
Yesterday's surprise Bank of Japan Quantitative Easing expansion also insulated the Yen from the safety play trade, depreciating versus the US dollar after the retail sales print, where ordinarily you would have expected the opposite. After the BOJ added a further 10 trillion Yen which it will purchase Japanese government bonds with, the US dollar surged past 78 yen where it last traded 31 October post intervention. The BOJ also announced that its inflation target will be 1%, as it tries to shrug of deflations concerns while helping boost the economy.
Analysts were spot on with UK inflation expectations which came in at 3.6% from last month's annualised 4.2% print. One of the reasons for the fall was value added tax (VAT) rise was no longer effecting the figure following last year's move from 17.5% to 20%. The large drop still sees inflation above target of 2% since 2009 but in his letter to the Chancellor Mervyn King wrote that The Committee's best collective judgement is that CPI inflation will continue to fall back to around the target by the end of 2012. The data itself did little to influence the Pound, with Greek concerns and US retail sales seeing the Pound now have given up all of February's gains trading down to 1.5644 USD.
The Australian dollar this morning welcomed a late rally on Wall Street and has clawed back some of overnights losses. The Australia dollar sits 35 pips from where it traded pre US retails sales print, recovering over 50 pips in the last 120 minutes of the US session.