The U.S. dollar snapped a two-day gain against the majority of its counterparts, as successful Spanish and Greek bond auctions dampened demand for the relative safety of the greenback. The U.S. dollar fell the most versus the Australian dollar as reports showed that China’s economy expanded at a faster pace than economists estimated, boosting higher-yielding currencies. China’s economy grew 8.9% in the 4th Quarter, beating forecasts of an 8.7%. China is Australia largest trading partner. The greenback has come under increased pressure as rising global equities led to “risk-on” trading. Indeed, the Stoxx Europe 600 Index rose 0.7% and S&P 500 futures are up nearly 1.0%. Later this morning the economic docket is expected to show the Federal Reserve Bank of New York’s general economic index rose to 11 this month, the highest since May. Readings higher than zero in the so-called Empire State Index signal expansion. Tomorrow sees the release of the producer price index, industrial production and a housing market index, followed by the consumer price index, housing starts, weekly jobless claims and the Philly Fed. Existing home sales will round out the week on Friday morning.
The Euro jumped as lower borrowing costs and strong economic data boosted demand for the common currency. Spain sold 12-month debt at an average yield of 2.049%, down from 4.05% at an auction last month. Greece sold 1.625 billion euros of 13-week treasury bills today with a yield of 4.64%, down from 4.68% last month. Meanwhile, Europe’s rescue fund, the European Financial Stability Facility, which at its rating cut to AA+ from AAA by Standard & Poor’s yesterday got bids for 4.66 billion euros compared with a 1.5 billion euro-sales target. The economic docket showed that the ZEW Center for European Economic Research index of German economic sentiment posted a record increase in January. The reading surged to –21.6 from –53.8 in December. Tomorrow, Greek Prime Minister Lucas Padademos is due to meet with a group representing private Greek bondholders after a five-day break to discuss forgiving at least half of the nation’s debt in the euro-area’s first sovereign restructuring. Greece’s official creditors begin talks Friday on spending curbs and budget cuts that will determine whether to disburse additional aid.
The Japanese yen fell across the board, save the U.S. dollar, as successful bond auctions in Europe and better-than-expected Chinese growth numbers weighed on the yen. However, the Japanese yen remains unchanged versus the greenback as the two continue to ebb and flow with the prevailing risk sentiment.
The Sterling strengthened against the dollar today after the release of consumer price inflation numbers that validated the Bank of England’s view that the New Year will see a sharp decline in inflation. This drop in CPI from 4.8% in December to 4.2% provided a sense of separation from the euro, which saw France downgraded by Standard and Poor to AA+ on Friday. Tomorrow jobless claims are expected to increase, while the ILO 3-month unemployment rate is expected to remain unchanged at 8.3%.
