Rising oil prices have brought back inflation related concerns among economies and central banks face a daunting task on tackling these issues by way of raising interest rates. Despite safe-haven demand, the Euro and South Korean Won gained on expectations of interest rate hikes coming in soon with the EURUSD trading at a high of 1.3720, NZDUSD reversed a drop to a two-month low to trade at 0.7513 on speculation that bets of interest rate halt were excessive even as cost of rebuilding from the massive earthquake could be huge, GBPUSD traded at a high of 1.6228 as the BOE releases minutes of rate decision meeting which could see a split among members, USDJPY scaled down to low of 82.53, USDCAD traded at a high of 0.9913 as risk-demand was lower among high-yielding currencies.
Asian markets declined on rising oil prices as airline stocks declined the most on speculation that earnings could be hit with the Nikkei dropping 0.8%, Topix dropping 1%, Hang Seng dropping 0.33% while the Shanghai Composite rose 0.25%. US stocks dropped yesterday as earnings dropped for companies from Wal-Mart to HP with the S&P 500 having its biggest decline since August. Yesterday, house prices declined 2.38% in the US while consumer confidence rose to 70 and manufacturing in Richmond area also posted positive figures but external factors could weigh in on the Dollar over demand for safety but Yen and Swiss Franc continue to remain stronger against the Dollar.
Chinese consumer confidence fell in Q4 2010 to 100 (prev. 104), lowest since 2009 as inflation accelerated above the 4% target rate for 2011 even as the central bank raised interest rates and bank reserve ratios. There is a threat that confidence could keep declining as long as inflation stays high as house prices remain high and consumption remains low. Japan saw its first trade deficit in 22 months of $5.7 Billion as exports slowed down and commodity prices pushed up import costs, exports rose 1.4% (prev. 12.9%) while imports rose 12.4% more than expectations. These figures could show a temporary slowdown in the economy as Japan raised its assessment on signs of overseas demand picking up and as Asian markets remained closed on Lunar New Year.
Several ECB officials have been making hawkish comments about rates as steps have to be taken to control inflation with ECB's Mersch stating that action could be taken rebalance the monetary policy stance. There are speculations that ECB could take action as early as next week and Germany's Merkel signaled that EU leaders may be ready to re-negotiate Greece's bailout terms to bring back confidence in the EU area. Also releasing today are the minutes of BOE's rate decision meeting which could see a vote split among members and speculations are there that another member may have joined in the call for hike in interest rates which could suggest that policy makers may decide on hikes in the coming meetings which should keep the Sterling supported.
Today's calendar would show BOE minutes, US existing home sales and speeches from central bank members.