The U.S. dollar rallied across the board overnight as European finance ministers withheld an aid package necessary to prevent the Greek economy from collapsing, increasing demand for the safe-haven currency. The greenback rose over 1.0% against the Australian dollar after the nation’s central bank lowered its growth forecasts. The Reserve Bank of Australia sees the economy expanding 3.5% this year, down from its November estimate of 4.0%. The U.S. dollar pushed higher against the other commodity-based currencies, such as the South African rand and New Zealand dollars as the price of crude oil and precious metals fell. In addition, the Swiss franc fell after the Federal Statistics Office said January consumer prices dropped 0.8% from a year ago, the most in two years. This morning’s economic docket showed that the trade deficit in the U.S. widened in December to a six-month high as a strengthening economy caused imports to grow faster than exports. The gap increased 3.7% to $48.8 billion from $47.1 billion in November according to the Commerce Department. Later this morning, the University of Michigan consumer confidence report is expected to register at 74.8 down from 75.0 in the month prior.
The Euro fell overnight against the U.S. dollar following a turbulent trading day not short on headlines. Early in the day it was reported that Greece reached an agreement on austerity measures, leading to speculation of a looming agreement between the Greek policymakers and the Troika on a second bailout. However, despite this news the euro was unable to extend its gains, and instead reversed its fortune after European finance ministers disapproved the Greek austerity measures and denied a 130B euro rescue package. A new vote on additional austerity measures will occur this weekend. German January CPI numbers remained unchanged from the previous month, reported in line with forecasts at –0.4%.
As expected, the Bank of England increased its bond-purchasing program yesterday from 275B to 325B pounds in response to the bleak economic growth outlook. This increase in quantitative easing proved to be expected as the pound was little changed yesterday versus the dollar. Overnight the pound strengthened against the euro as Greek Finance Minister Evangelos Venizelos reported the 130B euro bailout package was denied in response to inadequate austerity measures in Greece. U.K. PPI input on the month increased 1.1% from last month, as PPI output fell to 4.1% in January, down from 4.8% in December.
