EUR/USD
The euro hit two-and-a-half year highs against the dollar on Wednesday after key European Central Bank official downplayed deflationary threats. He added that the central bank has a number of policy measures at its disposal to address the issue. The euro strengthened broadly after the ECB left interest rates at a record low 0.25% at its policy meeting last week and implemented no new policy measures to shore up growth despite forecasting low inflation for years to come. Earlier Wednesday, data revealed that the euro zone industrial production contracted 0.2% in January from a month earlier, dragged down by a 2.5% drop in energy output. Analysts were expecting a 0.5% gain. However, the underlying trend remained strong, with industrial output rising 2.1% on a year-over-year basis, beating expectations for a 1.9% gain.
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GBP/USD
The pound traded steady to higher against the dollar on Wednesday, largely in standby mode as investors remained on the sidelines to await the release of U.S. retail sales data on Thursday. Investors remained cautious amid ongoing worries over the health of China’s economy after weekend data showed that exports dropped 18.1% in February and inflation slowed. Uncertainty over China's slumping exports reflected weak demand in the U.S. due to rough winter weather softened the greenback slightly, as investors awaited the release of retail sales data on Thursday. Markets were also eyeing the standoff between Russia and the West over Ukraine. Ukraine’s interim Prime Minister Arseniy Yatsenyuk was to travel to the U.S. to meet President Barack Obama on Wednesday, as diplomatic efforts to resolve the crisis continued. The pound saw headwinds of its own. Speaking before parliament’s Treasury Select Committee on Tuesday, Carney said the amount of spare capacity in the economy was probably slightly higher than 1.5% of gross domestic product, indicating that the economic recovery can continue without pushing up inflation.
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USD/JPY
The yen pushed higher against the dollar on Wednesday, as investors remained cautious amid lingering concerns over the health of China’s economy and the ongoing crisis in Ukraine. Safe haven demand continued to be underpinned by worries over the outlook for China’s economy after data over the weekend showed that exports dropped 18.1% in February and inflation slowed. Markets were also warily eyeing the standoff between Russia and the West over Ukraine. Ukraine’s interim Prime Minister Arseniy Yatsenyuk was to travel to the U.S. to meet President Barack Obama on Wednesday, as diplomatic efforts to resolve the crisis continued. Investors were looking ahead to U.S. reports on retail sales and consumer sentiment due out later in the week for further indications on the strength of the economic recovery.
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USD/CAD
The Canadian dollar fell to two-week lows against the U.S. dollar on Wednesday, as concerns over slowing growth in China spurred risk aversion, bolstering demand for the greenback. Safe haven demand continued to be underpinned by worries over the outlook for China’s economy after data over the weekend showed that exports dropped 18.1% in February and inflation slowed. The unexpectedly weak data raised fresh concerns over the strength of the world’s second-largest economy. Investors were also on edge after China’s first domestic bond default last Friday fuelled fears over problems in the country’s financial sector. Commodity prices were hit by concerns over weakening demand from China. Copper prices fell to the lowest level since 2010 and crude oil prices also weakened. Canada is a major exporter of crude and its dollar is sensitive to fluctuations in oil prices.
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