USD – The US dollar is broadly stronger across most major currencies after the White House cited the continuing resolution (CR) of government funding for the sequestration that is set to expire on March 27. The CR will give the Government more time for a further budget evaluation, into which could result into a more carefully targeted deficit reduction plan. President Obama, for the first time this weekend, proposed possible areas
to be trimmed, citing that reform to Social Security and Medicare as suggestions for how to navigate out of the sequestration. Despite the indecisions of the White House to finalize government spending cuts, the dollar looks to hold within its higher ranges on the Fed’s continued support over quantitative easing. In domestic news, the ISM purchasing manager index in New York reported a drop of 7.1% in February from the previous month. Today’s decrease in the ISM suggests a slowing pace of manufacturing and nonmanufacturing business activity in the New York area. For the week, both unemployment and Non‐farm Payrolls data are due this Friday with expectations of 7.9% and +160K respectively.
EUR – The euro fell to 2 ½ year lows vs. the dollar as last week’s inconclusive elections in Italy and poor economic data in Europe weigh on the currency. The single currency is hovering just above its lows of $1.2980 overnight amid falling investor sentiment after no party was able to secure a clear majority. Amid the 3 parties vying for power in Italy, the ruling Centre‐left party issued an ultimatum to the anti‐establishment to form a coalition or return to the polls. A new election could be held within months if no agreement is reached. Investor confidence is falling amid the uncertainty with today’s euro zone Sentix index for March worsening to ‐ 10.6 from ‐3.9 previously. Waning investor appetite also comes amid continuing headwinds for the region; Eurozone unemployment is at record highs at 11.9% while manufacturing activity remains sluggish. The ECB is likely to weigh these factors at its meeting this week at which it is expected to hold rates unchanged. But economic worries could prompt the central bank to cut interest rates sooner than anticipated in response to deteriorating economic conditions, placing further downward pressure on the euro.
GBP – The pound has come back from Friday’s 2 ½ year low against the dollar following a report showing housing prices increased for the first time in 9 months in February. The 10 year gilt yield, however, fell to a two month low after the BoE said net lending to consumers and companies
dropped 2.43B pounds in the 4th quarter. The BoE meets this week, and they will be considering new measures to revive growth as the economy shows signs of slipping into an unprecedented triple‐dip recession. The pound, as a result, has depreciated 5.3% this year, the worst performer among 10 developed‐market currencies as tracked by Bloomberg.
JPY – The JPY rose against most of its major trading partners as China’s CSI 300 Index of equities dropped by the most in two years, boosting demand for safer assets. This week’s two‐day BoJ meeting will be the last for Gov. Shirakawa, given his departure on March 19th. The nominee for his replacement, Haruhiko Kuroda, testified before parliament on Monday and voiced strong support for aggressive monetary accommodation as the BoJ pursues its 2.0% inflation target. Kuroda told parliament that the BoJ hasn’t bought enough assets to end deflation as it is the biggest task for the economy.
Commodity currencies – The commodity currencies are weaker against the dollar as sentiments towards global economic growth are low. The CAD is slightly weaker against the USD as investor focus was directed overseas with poor data from Europe and the dull outlook on overall global growth. In addition, weak economic data over the last few weeks have added pressured to the CAD, suggesting limited domestic growth. The
first key driver will be the BoC’s rate decision on Wednesday, where the central bank is widely expected to hold rates at 1%. The AUD slipped 0.8% to 1.0119, its weakest in eight months against the USD as worries about China’s announcement that it was planning to tighten lending in its property sector, highlights concerns about global growth. The slowdown in Chinese home construction lessens demand for steel and iron ore, Australia’s single biggest export to China. The RBA will meet on Tuesday, where market participants expect the RBA to keep rates on hold.
RMB – The Chinese yuan weakened against the USD today after investors captured gains from last week’s rally which reached its strongest level in 4‐weeks. However, the yuan is facing pressure after Beijing warned of more curbs on the property sector to cool housing prices. In addition, PBoC deputy governor Yi Gang warned that capital flows into emerging markets and policy easing abroad is not conducive to China’s economy,
stating that China is prepared for a currency war if needed. Despite the recent rhetoric in currency manipulation, the yuan is trending stronger than both its 200 and 50‐day moving average.
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