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US$ Falls Versus Yen and Swiss Franc

The U.S. dollar held a tight range against most of its counterparts overnight, but fell against the Japanese yen and Swiss franc after more earthquakes shook buildings in Tokyo and Japan raised the severity rating of the nuclear crisis that began last month, reviving demand for the safest assets.  Indeed, Japanese officials said the accident at the Fukishima Dai-Ichi power plant may release more radiation than the 1986 Chernobyl disaster.  The U.S. dollar was unable to capitalize on widespread risk aversion overnight as the earthquakes and poor European economic data send global stocks lower.  Nevertheless, the U.S. economic docket showed the U.S. trade deficit narrowed in February from a seven-month high as demand for imports decreased for the first time in four months.  The gap shrank 2.6% to $45.8 billion from $47 billion in January. 

The Euro rose modestly against the greenback despite poor economic data and falling stocks as the International Monetary Fund and European Commission prepare to meet in Libson to discuss an 80 billion-euro aid program for Portugal.  A report today showed German investor confidence fell more than economists forecast in April after the European Central Bank raised interest rates and Portugal became the third nation to seek a bailout.  The ZEW index of investor expectations fell to 7.6 from 14.1 in March.  ECB policy makers led by President Jean-Claude Trichet raised the main refinancing rate to 1.25% from a record low of 1.0% and left the door open for future rate increases, boosting demand for the Euro. 

The Japanese yen rose overnight on widespread risk aversion and as two additional earthquakes rocked the island nation.  An earthquake struck Chiba, east of Tokyo, and shook buildings in the capital this morning and had a magnitude of 6.2 according to the U.S. Geological Survey.  Another earthquake with a magnitude of 6.3 struck the Fukushima preference in the afternoon.  Meanwhile, Japan’s Nuclear and Industrial Safety Agency raised the level of the Fukushima crisis to 7, the highest in the standard global scale.  Also, the IMF lowered its 2011 forecast for Japanese growth to 1.4% from 1.6%, citing effects from the disaster. 

The British sterling slid versus the U.S. dollar and fell to the weakest level in almost six months against the euro as data showed inflation unexpectedly slowed, damping speculation the Bank of England will have to raise interest rates.  Consumer prices rose 4.0% from a year earlier after a 4.4% increase in February, the Office for National Statistics said in London.  Also, data from the British Retail Consortium showed retail sales plunged by a record in March as inflation squeezed household spending.  Sales at stores fell 1.9% from year earlier, the biggest drop since the data began in 1995.

US$ Gains as Congress Averts Government Shutdown

The U.S. dollar gained modestly versus most of its major peers after U.S. lawmakers averted a government shutdown by agreeing to cut about $38 billion in spending.  Indeed, U.S. Congress leaders and President Barack Obama passed an agreement late Friday, less than two hours before the government’s funding authority was due to expire.  The greenback was able to retrace slightly from all-time lows against the Australian dollar and 40-month lows against the Canadian dollar as the prices of commodities retreated from recent highs.  There is no major economic data slated for release today so the greenback may remain range bound as U.S. equity futures foreshadow a flat opening for American shares.  Import and Export prices will hit the wire tomorrow morning, followed by Retail sales and the Fed Beige book on Wednesday.  Producer Prices and weekly jobless claims are due out Thursday, while the Consumer Price Index, Empire Manufacturing, Industrial Production and Consumer Sentiment will round out the week on Friday.

The Euro pulled back from a 15-month high versus the U.S. dollar on concern Europe’s debt crisis may be worsened by rising interest rates.  The common currency has gained nearly 8% against the dollar since the start of this year as improving economic growth in Germany and accelerating inflation has boosted speculation that interest rates would be lifted.  The European Central Bank last week raised its key rate to 1.25% from a record low of 1.0% and left the door open for further rate increases.  Some have argued that the ECB’s decision may be ill advised as peripheral euro-area nations struggle to reduce their debt burdens.  Portugal last week became the third euro-area nation after Greece and Ireland to seek financial aid when it requested a bailout package from the European Union and the International Monetary Fund. 

The Japanese yen gained versus most of its counterparts as another earthquake overnight revived speculation that insurance companies would need to repatriate offshore investments to help pay for damages.  The 6.6 magnitude earthquake centered about 100 miles northeast of Tokyo and 30 mile southwest of the crippled Fukushima Daiichi nuclear plant.  Workers at Fukushima Daiichi nuclear plant evacuated briefly but soon returned to resume their efforts to cool the troubled facility.  The earthquake did not produce a tsunami. 

The British pound weakened slightly overnight, but remains within one percent from its strongest level since January 2010 as Bank of England Policy maker Andrew Sentance signaled he voted for a half-point U.K. interest-rate increase last week.  Financial markets suggest that the Bank of England’s benchmark interest rate could climb to 2.0% next year, Sentance told Sky News Yesterday.  Indeed, a government report tomorrow will probably show inflation stayed at the highest level in almost 2 ½ years in March, according to the economist’s forecasts. 

US$ Hits Multi-Year Lows Versus a Number of Currencies

The U.S. dollar continued its weekly downward trend, falling against all of its major counterparts on widespread risk assumption.  The greenback fell to a fresh 14- month low versus the Euro as strong German export data boosted bets for further interest rate hikes in the ECB.  The pound traded to its highest level in 15 months against the dollar as inflation pressures continue to intensify in Britain.  In addition, the Aussie dollar traded to all-time highs against the greenback as gold traded to a record and the Canadian dollar pushed to its strongest level since 2007 as crude oil pushed to a 30-month high.  There is no major economic data slated for release in the United States today so expect the dollar to continue to trade with the prevailing risk sentiment.  The dollar could face increased headwinds today as U.S. equity futures point towards a higher open.  However, the greenback is likely to settle into ranges in the afternoon as liquidity falls ahead of the weekend.

The Euro gained against the dollar, extending its second weekly advance, after a report showing German exports rose the most in five months boosted bets that policy makers will lift interest rates further to curb inflation.  Yesterday, the European Central Bank raised interest rates from a record-low 1% and left the dollar open for further increases.  According to a Bloomberg News survey of economists, the ECB will increase its rate by 25-basis point every three months.  The median forecasts for show expectations for rates to rise to 1.5% in July and 1.75% in October.  As interest rate expectations rise, the common currency will likely remain in favorable ranges against its American counterpart.  Meanwhile, European Monetary Affairs Commissioner Olli Rehn said a bailout program for Portugal will likely amount to about 80 billion euro. 

The Japanese yen fell versus the Euro and held near 6-month lows versus the greenback on speculation the Bank of Japan will continue with accommodative monetary policy to help its economy recover from a record earthquake on March 11.  The yen gained slightly during yesterday’s trading session a new 7.4 earthquake struck the country.  However, the currency quickly rebounded to earlier ranges.  Yesterday, the Bank of Japan unveiled a 1 trillion yen, one-year loan program to companies affected by the quake and tsunami as board members downgraded their economic assessment for the first time since October.

The British pound rose to its strongest level since January 2010 against the dollar as British data showed producer prices rose at a faster pace than economists predicted, strengthening the case for higher interest rates.  The cost of goods at factory gates increased 0.9% from February, the Office for National Statistics said today.  The print was higher than the 0.6% median prediction of economists.  Investors have priced in a 50 basis-point rise in the key U.K. rate by November, according to forward rates on the sterling overnight interbank average.  Meanwhile, the economic docket showed that U.K mortgage approvals declined 12% in February from a year earlier, according to the Council of Mortgage Lenders. 

US$ Gains Despite ECB Hike as Portugal Seeks Bailout

The U.S. dollar once again traded in a mixed direction overnight.  The greenback pushed modestly higher against the Euro as Portugal’s request for economic aid overshadowed the European Central Bank’s first rate hike since 2008.  However, the U.S. dollar fell to a fresh all-time low as the price of commodities remain elevated and statistics showed Australia’s unemployment rate fell to 4.9% in March from 5.0% in the previous month.  The economic docket showed that fewer Americans filed first time claims for unemployment benefits, adding to recent strong jobs data.  Applications for jobless benefits fell by 10K last week, the fewest since the February. There is not any further economic data slated for release today so expect the greenback’s direction to be largely driven by developments in the Euro-zone as ECB President Trichet’s comments hit the wire.   

The Euro slipped from its highest level in 14 months versus the U.S. dollar after Portugal’s Prime Minister Jose Socrates said that the Iberian country had requested a bailout from the European Union.  A rescue package for Portugal may be worth as much as 75 billion euros, two European officials with knowledge of the situation said.  Portugal becomes the latest nation to seek a EU-led bailout after Greece sparked a sovereign-debt crisis that threatened to splinter the Euro region a year ago.  Ireland suffered a similar fate over the summer.  Portugal is the largest of the three countries to request a bailout and increased fears that Spain may also need assistance will weigh on the currency moving forward.  Nevertheless, the European Central Bank raised its benchmark interest rate for the first time in nearly three years.  The ECB voted to boost its main rate by 25 basis points to 1.25% to stave off inflation.  The decision was widely expected and some analysts believe this may be the first of a series of rate hikes throughout the year as ECB President Trichet maintains that inflation risk remain on the “upside.”

The Japanese yen retraced some of its recent losses and pulled back from a 6-month low versus the U.S. dollar as technical charts indicated the move following the international intervention was excessive.  The currency also found support on bets Japanese exporters took advantage of the slide to purchase the yen.  However, moving forward the yen may face increased headwinds as the country attempts to rebuild from last months earthquake and tsunami.  Nevertheless, the Bank of Japan kept its key overnight rate near zero, as forecasts by all 57 economists surveyed by Bloomberg. 

The British pound held a fairly tight range against the U.S. dollar, but pushed higher versus the Euro as Portugal’s request for financial assistance dented demand for the 17-nation currency.  The Bank of England kept its key benchmark interest rate unchanged at a record low of 0.5% at the conclusion of their meeting today.  The decision was widely expected but investors will remain vigilant of signs from the central bank as to when they may raise interest in the coming months.  As inflation remains double the central bank’s limit for price pressures, investors have priced in a 25-point rate hike by July.  However, as the economy remains weak, the BoE may maintain their “wait and see” approach throughout the summer. 

US$ Falls to 14-Month Low Versus Euro Ahead of ECB Meeting

The U.S. dollar traded in a mixed direction overnight, falling against nearly all of its major counterparts, but pushing to a 6-month high versus the Japanese yen on speculation Japan will trail behind other developed nations in ending stimulus measures.  The greenback traded to a 14-month low against the Euro before the European Central bank meets tomorrow to decide on interest rates.  The greenback remains under pressure versus the commodity-based currencies with the U.S. dollar pushing to fresh all-time lows versus the Australian dollar.  The Swiss franc also gained after a report showed inflation quickened more than forecast.  Meanwhile, the economic docket showed that mortgage applications in the U.S. fell for a second straight week, led by a decline in refinancing.  The Mortgage Banker’s Association’s index of loan applications decreased 2.0% in the period ended April 1.  The data has had little effect on the direction of the greenback in early trading and with a light economic docket the U.S. dollar may continue to trend weaker against its higher-yielding counterparts as U.S. equity futures foreshadow a higher open for American shares. 

The Euro rallied to the highest level in over a year versus the U.S. dollar ahead of tomorrow’s European Central Bank meeting in which the central bank is expected to raise interest rates from record lows.  The common currency has gained 7.0% against the dollar this year as stronger economic growth in Germany and accelerating inflation boosted expectations that policy makers will need to raise interest rates.  In addition the economic docket showed that gross domestic product in the euro area expanded 0.3% in the fourth quarter from the previous three months.  The reading was in line with expectations.  Also, German factory orders jumped a more-than-forecast 2.4% in February from a month earlier, beating expectations for a 0.5% gain.

The Japanese yen slumped against all of its counterparts as global equities continued their northerly trend, sapping demand for the safe-haven currency.  The yen has continued to be under pressure over the past weeks on speculation Japan will trail behind other economies in ending stimulus measures as it rebuilds after its biggest earthquake on record.  The Bank of Japan is considering offering a credit program to spur banks to lend to companies with cash-flow shortages in the wake of the quake, according to Bloomberg News.  In addition, Japan’s central bank will keep its target rate at zero at the end of its meeting tomorrow. 

The British pound pushed modestly higher as global equities rose and British economic data painted a rosier outlook for the economy.  Indeed, the sterling rose for the fourth day against the dollar as a report showed U.K. home prices rebounded in March, adding to signs the economy is recovering fast enough for the Bank of England to raise interest rates.  House prices increased 0.1% from February when they dropped 0.9%, according to the Lloyd’s Banking Group Plc’s Halifax unit.  The data follows a report yesterday that showed service industries grew at the fastest pace in more than a year. 

US$ Gains on Euro as Portugal Faces Further Downgrades

The U.S. dollar traded in a mixed direction overnight, falling versus the British pound but pushing higher against the Euro and Japanese yen.  The dollar advanced after Federal Reserve Chairman Ben Bernanke said inflation must be watched “extremely closely,” encouraging bets that interest rates may be raised sooner than previously expected.  He continued on to say that policy makers would “have to respond” if estimates that faster inflation will be transitory prove incorrect.  The comments echoed his March 1st statement to lawmakers that Fed officials were “prepared to respond as necessary” to inflationary pressures.  Market participants will now look to the release of the FOMC’s meeting minutes at 2 p.m. today for hints on future interest rate policy.  The greenback also got a boost from the unexpected announcement that the People’s Bank of China will raise its borrowing costs for the fourth time since the global crisis to limit the risk of asset price bubbles in the world’s fastest growing major economy.  Later this morning, the U.S. Institute for Supply Management’s index of non-manufacturing business is expected to fall to 59.5 in March from 59.7 in the previous month, which was the highest reading since August 2005.  A reading above 50 indicates growth.

The Euro consolidated overnight, falling against the U.S. dollar and the British pound as investors continued to worry about the persistent European debt crisis.  Indeed, Moody’s Investor Service lowered Portugal’s long-term credit rating by one step to Baa1.  In addition, Moody’s said that it is “more likely than not” that Portugal will ultimately share Ireland’s fate as the government faces record-high financing costs, and warned that the region faces another possible downgrade as the EU maintains a relaxed approach in addressing the sovereign debt crisis.  As the European Central Bank is widely expected to deliver a 25bp rate hike later this week, heightening growth concerns could bear down on the exchange rate over the coming months.

The Japanese yen fell against all of its major counterparts as British service-based activity surged and ahead of a report that will show U.S. services expanded, reducing demand for Japan’s currency has a refuge.  In addition, the Japanese yen traded to a 10-month low against the Euro on speculation the European Central bank will raise interest rates this week, while the Bank of Japan will keep them near zero. 

The British pound jumped to its strongest level in two weeks against the U.S. dollar as a report showed service industries in the U.K. expanded at a faster pace in March, bolstering the case for higher interest rates.  Service-based activity in Britain unexpectedly expanded at a faster pace in March, with the PMI advancing to a 13-month high of 57.1 from 52.6 in the previous month.  However, as the MPC is widely expected to retain its current policy at the conclusion of its meeting on Thursday, the BoE meeting minutes due out April 20 is likely to set the tone for future price action.

US$ Remains Near Yearly Lows Versus a Number of Currencies

The U.S. dollar traded in sideways ranges overnight, but continues to trade near recent lows versus a number of currencies.  Indeed, the greenback remains at its yearly lows against the Canadian dollar and record lows against the Australian dollar as the price of commodities continue to push higher.  There is no major economic data slated for release today so expect the U.S. dollar to trade with the prevailing risk sentiment, possibly falling further as U.S. equities look to open modestly higher. A report tomorrow is forecast to show U.S. services industries grew in March. Also due out tomorrow afternoon are the FOMC’s meeting minutes from the Fed’s last interest rate decision.  Traders will look for a change in vocabulary from the central bank to gauge future interest rate expectations.  MBA Mortgage Application is slated for Wednesday and weekly jobless claims will round out the week on Thursday.

The Euro held near its yearly highs against the U.S. dollar as global equities surged and European economic data showed inflation accelerated to the fastest pace since September 2008.  Producer prices in the euro area jumped 6.6% in February from a year earlier, up from a revised 5.9% the previous month.  The Euro may hold its gains this week before the ECB’s April 7th policy meeting, at which the central bank is widely expected to raise its benchmark interest rate 25 bp from a record low of 1.0%.  Investors expect the ECB to raise its main rate by 132 basis points over the next 12 months, compare with a prediction of 44 basis points of increases at the end of last year, a Credit Suisse Group AG index showed. 

The Japanese yen remains near its lows of the year against the U.S. dollar following a report that showed European producer price inflation accelerated and before a separate report will show U.S. services industries grew, reducing demand for safer assets.  Moving forward, the Japanese currency may face increased headwinds as the economy attempts to recover from last month’s earthquake and tsunami.  Damage from the natural disasters has been estimated by the government at as much as 25 trillion yen ($297 billion).  Prime Minister Kaoto Kan is preparing an extra budget to pay for reconstruction efforts. 

The British pound rose against the majority of its most-traded peers as a report showed U.K. construction expanded at a faster pace than economists predicted last month, fueling optimism that the economic recovery is picking up. The gauge of building activity based on a survey of purchasing managers was at 56.4 last month, near an eight-month high in February, Markit Economics Ltd and the Chartered Institute of Purchasing and Supply said today.  Nevertheless, the Bank of England will keep its benchmark interest rate at a record low of 0.5% on April 7th.  The diverging interest rates between the Euro-zone and the U.K. will likely put pressure on the sterling against the common currency.  However, as U.K. policy makers forecast inflation to rise to an annualized rate of 5 percent in 2011, there could be a growing shift within the MPC, and the central bank may show an increased willingness to lift the benchmark interest rate off the record-low in order to balance the risks for the region.

US$ Rallies Following Strong Payrolls Data

The U.S. dollar traded in a mixed direction overnight as investors awaited the release of this morning’s Non-farm payroll data in the United States.  However, the greenback did gain nearly 1% versus the Japanese yen as the currency retraces its steep gains following last month’s earthquake and tsunami.  The U.S. dollar remains under pressure versus the commodity-based currencies with the Australian dollar breaking all-time highs against its American counterpart.  The Canadian dollar also pushed to recent highs as the price of oil trades above $107 a barrel and data released yesterday showed the economy was growing at a faster pace than expected.  Nevertheless, today’s economic docket showed that the U.S. economy added more jobs than forecast in March and the unemployment rate unexpectedly fell to a two-year low of 8.8%, a sign the labor market recovery is gathering speed.  Payrolls increased by 216K workers last month, the Labor Department said today.  The jobless rate dropped from 8.9% in February, the fourth straight decrease.  The U.S. dollar has reacted favorably in early trading to the positive data as an improving labor market may lead the Fed to see the scope to normalize policy over the coming months. 

The Euro fell modestly overnight and the common currency may see increased volatility in the days ahead as market participants juggle interest rate expectations and the possibility of a deepening debt crisis in Europe.  The European Central Bank is widely expected to lift the benchmark interest rate off the record low on April 7th. According to Credit Suisse overnight index swaps, investors are pricing a 100 percent chance for a 25bp rate hike next week, while borrowing costs are expected to increase at least 125bp over the next 12-months as the ECB adopts a hawkish outlook for monetary policy.  At the same time, Ireland’s sovereign credit rating was cut to BBB+ from A- by S&P Ratings Agency.  In addition, Portugal looks likely share the same fate as Greece and Ireland as the EU struggles to restore investor confidence.  The heightening risk for contagion is likely to produce increased headwinds for the euro as the economy copes with an uneven recovery.

The Japanese yen fell for the 7^th day against the U.S. dollar, its longest losing streak against the greenback since July 2005 as strong American economic data diminished demand for the yen as a safe-haven.  Large Japanese manufacturers forecast the yen price will average modestly lower over the next fiscal year ending March 2012, according to the Bank of Japan’s Tankan survey released today.  However, the majority of the responses to the survey were received prior to the March 11^th earthquake and ensuing tsunami. 

The British pound pared its overnight advance as manufacturing in the U.K. expanded at a lower pace during the previous month.  The pound has also become under pressure in early trading as data released in the United States paints an improving job market for the world’s largest economy.  The purchasing manager index for manufacturing slipped to a five-month low of 57.1 in March from a revised 60.9 in the month prior, and the ongoing slack within the real economy could lead the BoE to retain its wait-and-see approach throughout the first-half of the year as it aims to encourage a sustainable recovery. However, as policy makers in the U.K. see inflation advancing to an annualized rate of 5.0% in the coming months, there could be a growing shift within the MPC, and the BoE may look to gradually normalize monetary policy going into the third quarter as its credibility to ensure price stability comes under increased scrutiny.