The U.S. Dollar traded lower against safe haven currencies and several majors after China disappointed investors by reporting that Retail Sales were lower than anticipated, posting a mere hike of 11.8 percent in the initial two months of the year, while activities in the Industrial sector came in at 8.6 percent rather than the predicted 9.5 percent. The U.S. Dollar weakened against all of its counterparts on comments by Stanley Fischer, a nominee for the position of Deputy of the Federal Reserve’s Chairperson. In his statements he suggested that the American economy is in need of further stimulus. The greenback slumped versus the Yen subsequent to the announcement of better than predicted economic announcements out of the U.S. which denoted that Retail Sales climbed 0.3 percent in the month of February, putting an end to two consecutive months of declines. Furthermore, the Labor Department said that the number of individuals who filed for Initial Unemployment Benefits dropped by 9,000 in the week that concluded on March 8, to 315,000, which was a three-month low. Gold Prices climbed to a six-month high as the markets remained vigilant over the situation developing between Russia and the Ukraine. Futures for April delivery traded at $1,375.40 a troy ounce on the Comex, which was the most since the 9th of September.
The Euro hovered close to a two-and-a-half-year high versus the greenback as speculators believe that the European Central Bank is not ready to increase easing at this time, a factor that fueled demand for the Euro. The currency was supported a day after Germany’s Finance Minister, Wolfgang Schauble, suggested that the benchmark interest rate is too low. He also stated that deflation was not likely to become a problem in the Euro region. The Euro also traded higher against the Yen, despite lackluster macroeconomic fundamentals out of China denoting that Retail Sales and Industrial Output missed forecasts. The British Pound advanced the most in four weeks versus the U.S. Dollar on speculation that the Bank of England may raise the costs of borrowing money sooner than intended; and it remained high while two and five-year Gilts surged to the highest level in over four years. On the data front, The U.K. announced that House Prices did not go up in February. According to RICS, the gauge which measures prices slipped from 52 to 45.
The Yen advanced as traders remained uncertain over China’s economic prospects. The People’s Bank of China said that it is ready to step in to ensure the country grows, but that was not enough to cause a shift in risk appetite. In fact, confidence remained subdued, prompting all Asian markets to sustain record losses. The Yen was also bolstered by domestic releases which confirmed that Core Machinery Orders climbed in January, reversing December’s drop. According to analysts, the government keeps a close watch on Machinery Orders as they point to the strength in business capital investing. The strong numbers suggest that companies may invest more in the future, despite the new sales tax scheduled to go into effect in April.
In the South Pacific, the New Zealand and Australian Dollars rallied against their U.S. counterpart. The Aussie strengthened against all of its peers on data showing that employers added over three times the payrolls economists expected. The number of employed individuals rose by 47,300 last month, after rising by a modified 18,000 in January. And full-time employment went up by 80,500, the most since August of 1991. The Unemployment Rate stayed at 6 percent, in line with predictions. In New Zealand, the Reserve Bank rallied as the Reserve Bank became the first developed central bank to increase the costs of borrowing money since 2011, and as policy makers indicated they may tighten monetary policy to avert inflationary pressures.
EUR/USD- Industrial Production Posts High
The EUR/USD advanced following better than predicted economic reports. For starters, Spanish CPI came in high, while the Euro-zone’s Industrial Output on a Year over Year basis surpassed forecasts, prompting the shared currency’s rise. Activities in the Industrial sector dipped 0.2 percent in the first month of 2014, but it rose 0.1 percent in the region. Economists explained that the slump occurred due to the 2.5 percent drop in the production of energy, which resulted from the unusual warm temperatures. Other reports indicated that the E.U. will provide trade breaks to the Ukraine in the amount of 500 million Euros per year in an effort to support the nation. The savings to the Ukraine will come in the form of tariff cuts. The EUR/USD hovered close to 2 ½ year highs, but its gains were capped as traders remained concerned over the future of China’s economy.
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GBP/USD- Home Values Cool
The GBP/USD advanced despite reports by the Royal Institution of Chartered Surveyors which indicated that House Prices cooled in the past month. According to RICS, the index which measures values went from 52 to 45. The number of buyers climbed at the slowest pace in close to twelve months, and there was a shortage of homes for sale. Data issued last week confirmed that Mortgage Loan Approvals rose to the highest in seven years, and the recovery of the real estate market prompted the Bank of England to put an end to programs aimed at helping individuals buy properties. In other news, the Council of Mortgage Lenders stated that the number of loans for home purchases slipped 16 percent in the initial month of 2014 because of the normal seasonal slowdown. The GBP/USD hit the highest rate in one month on the likelihood the Bank of England won’t wait to boost the key cash rate.
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USD/JPY- Kuroda May Face Challenges
The USD/JPY dipped as demand for harbor currencies remained high following the release of less than stellar economic metrics out of China, and as tensions between Russia and the Ukraine continued. Japanese central bank governor Haruhiko Kuroda stated that he expects opposition from several of the developed nations should he decide to boost stimulus, as the impact on the currency may dampen world economic growth. Economic charts from around the world show that inflation has risen in ten major economies over the last decade. However, the charts did not include Japan since the Asian nation has grappled with more than ten years of deflation, though it is now enjoying a solid hike in consumer prices. On the data front, Core Machinery Orders surged 13.4 percent in the first month of 2014, signaling that companies are planning to make further investments in the future.
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NZD/USD- RBNZ Raises Rate
The NZD/USD surged to a ten-month high after Graeme Wheeler, the governor of the Reserve Bank, announced a rate increase, and intimated that the central bank may tighten policy in the near future. Policy makers voted for a benchmark interest rate increase, boosting it to 2.75 percent, after it remained at 2.5 percent for some time. Mr. Wheeler said that the Kiwi may continue to trade to the upside as the country is experiencing a high level of economic momentum, and added that the bank may wind down stimulus earlier than predicted. The pair shrugged off the weak data out of China which showed that Industrial Output only went up 8.6 percent, short of the expected 9.5 percent hike.
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Today’s Outlook
Today’s economic calendar shows that Japan will report on Capacity Utilization and Industrial Production. The U.K. will issue the Trade Balance. The Euro region will announce Changes in Employment. The U.S. will release Core PPI, PPI, and the Michigan Consumer Sentiment.