Euro drops amid political uncertainty in Italy
The single currency fell against other currencies on Thursday as investors remained cautious due to the political deadlock in Italy. The negative comments from an IMF spokesman also increased risk aversion as he said IMF may cut growth forecast for U.S. and global economy if U.S. spending cuts take effect.
Although the single currency rose briefly to 1.3162 ahead of Asia open due to buying of eur/yen cross, price edged lower in Asian session on cross unwinding in euro, price then dropped to 1.3096 in Europe on the news that EU watchdogs ESMA and EBA warned retail investors about 'dangers' of buying contracts for difference derivatives. Later, despite euro's recovery to 1.3737 in New York morning, dollar's broad-based strength due partly to the strong Chicago PMI (56.8 versus the forecast of 54.5) sent the pair further lower to 1.3058, then marginally lower to 1.3054 in New York afternoon.
In New York morning, the single currency was under pressure as an IMF spokesman said they are 'set to revise their own growth forecasts for U.S. and global economy if U.S. spending cuts take effect Friday; the full impact of U.S. spending cuts are likely to shave at least 0.5% point off U.S. growth forecast, but it depends on how far sequestration is implemented.'
The British pound traded narrowly in Asian session and then rose briefly to 1.5203 in European morning before dropping to 1.5152. Later, despite cable's breach of Tuesday's high at 1.5219 to 1.5223 in New York morning due to cross buying of sterling especially versus euro, the price fell sharply in tandem with euro to 1.5148 before staging another recovery to 1.5196 in U.S. afternoon.
Versus the Japanese, although the dollar retreated in Asia after a brief rise to 92.67 due to cross buying of yen versus other European currencies, renewed buying at 92.02 lifted the price in European morning and the dollar later rallied in New York afternoon to an intra-day high of 92.85 on broad-based strength in greenback before easing.
Earlier in Australia, the USD/JPY was supported as a lawmaker said 'Japan government nominates ADB's Kuroda for BOJ governor; Japan government nominates academic Kikuo Iwata for BOJ deputy governor; Japan government nominates BOJ official Hiroshi Nakaso for BOJ deputy governor.'
On the data front, U.S. GDP annualised in Q4 is released at 0.1%, versus the expectation of 0.5% and the previous -0.1%. U.S. jobless claims came in at 344K, lower than the forecast of 360K and the revised 366K last week. German preliminary CPI and HICP in Feb came in at 0.6% m/m and 1.5% y/y, and 0.8% m/m and 1.8% y/y, versus the forecasts of 0.7% and 1.6%, and 0.7% and 1.7% respectively.
In other news, European Central Bank Governing Council member Ewald Nowotny said 'there is a clear improvement over the past year in Europe's economic situation; southern countries are still in recession, hope this will improve in 2014; all a bit nervous about Italy but does not think will be fundamental change in Italian politics; EUR/USD is in historical range, no need for intervention or even more nervousness.' Dutch Finance Minister Jeroen Dijsselbloem said 'for Ireland and Portugal, it is being considered to extend maturity of bailout loans to help return to market funding.' Portugal Prime Minister said we are 'passing through a significant moment of adjustment; need second phase of state reforms to create long-lasting budget savings; can't have lower taxes without lasting spending cuts.' BoE's Dale said '"great deal of hope that things are beginning to turn around" in the economy.'
Data to be released on Friday:
Japan Unemployment rate, Household spending, National CPI (core), National CPI, Tokyo CPI, Tokyo CPI (core) , Business capex, China PMI Manufacturing, HSBC Manfact. PMI, U.K. Nationwide hse prices, Manufacturing PMI, Mortgage approvals, Germany Retail sales, Swiss PMI, Italy Manf. PMI, France Manf. PMI, Germany Manufacturing PMI, EU Manufacturing PMI, CPI estimate, Unemployment rate , Italy unemployment rate, CPI prelim., HICP prelim., U.S. Personal income, Personal consumption, PCE index, PCE core, Markit manfact. PMI final, U.S. of Michigan consumer confidence, Construction spending, ISM manufacturing, Canada GDP.