FX news and analysis 15th Mar

USD

The dollar traded down against most pairs on Thursday after risk appetite appeared to rebound. The efforts of the U.S and the U.K to release oil reserves may have helped as the oil-sensitive aussie and yen pairs in particular showed strength – although this may also have been as a result of traders booking profits after the rallies in these pairs. Data for the greenback was broadly supportive with better employment and manufacturing stats – although Producer Prices fell in line with expectations which was not a particularly strong sign from a monetary policy perspective. Producer Prices in February YoY fell to 3.3% versus the 4.1% print in January; PP's Ex Food and Energy remained unchanged at 3.0% versus the 2.9% expected. Initial Jobless Claims fell to 351k – which was 4k more than expected; Continuing Claims fell considerably more than expected to 3343k vs 3405k expected and 3424k previous. Empire State Manufacturing rose to 20.21 when a fall to 17.5 from 19.53 previously had been forecast. Net Long Term TIC flows rose to 101bn dollars vs 38.5bn expected and 19.1bn previous – this last stat providing concrete evidence of a new-found optimism in the dollar and the U.S economy.

EUR

The euro bounced after dollar consolidated and the IMF agreed a 28bn euro loan to Greece as part of its bailout package. An easing in commodity prices may also have helped risk appetite after President Obama and Prime Minister Cameron agreed to release more reserves. The bounce in the euro may be short-lived, however, after the ECB's Monthly Report revised down growth forecasts to from -0.5% to 0.3% in 2012 although the report gave no sign of more rate cuts. E.U officials were upbeat about Portugal with the Commissioner for Economic Affairs Olli Rehn saying that Portugal's prospects were much brighter when compared to Greece, particularly because of a more accommodative political base backing the drive for austerity. On the economic docket, Italian General Government debt rose to 1935.8bn from 1897.9bn; Euro-zone Employment (4Q) YoY fell by -0.2% vs 0.3% in the previous month and the QoQ figure remained unchanged at -0.2%; Euro-zone labour costs meanwhile rose to 2.8% when a 2.3% lower result had been expected and 2.6% was the previous month's result.

GBP

 Sterling traded flat in most pairs and weakened in others on Thursday after Fitch downgraded its status to negative from neutral following growth concerns after recent data showed a surprise fall in Industrial Production and worse-than-expected employment data. The pound suffered as investors contemplated the possibility that the U.K might lose its AAA credit rating following other recent downgrade warnings from Moodys. Commentary from BOE board member Jim Broadbent also supported the bearish sterling outlook after he emphasized global economic risks as continuing factors weighing on the U.K economy and argued that despite high household debt in the U.K interest rates might have to rise as a result of a rise in the price of global commodities. Unlike the U.S which is comparatively 'home- and -dry' from a monetary policy standpoint there is still a very real possibility the BOE will introduce further QE, although this is not expected to happen until May at the soonest.

JPY

The yen recovered on Thursday after traders booked profits on recent rallies and the dollar consolidated gains. Recent yen weakness had led to the dollar rising to 11-month highs after a sudden rise in treasury yields encouraged investors to store their money in dollars rather than lower-yielding yen. The current pull-back is not expected to last as yen faces severe economic headwinds which did not exist before. A major one is the loss of the country's nuclear power industry post-Fukushima and its new reliance on expensive imported fossil fuels, however the future for the nuclear plants remains uncertain. There are still those who see major risks in the global economy and the yen could still strengthen on haven-demand again, as commentary from Japan's top currency official highlighted today. Takehiko Nakao said a yen rise could “resume on market speculation,” and the country remains a formidable economic entity with strong exporting corporations. On the data front Tokyo Condominium Sales YoY in February showed a 13.0% rise when the previous month had printed 32.6%. The Leading Index on Friday morning is the next important release, with a previous print of 94.9.