Forex News

The British Pound extended the previous day's decline and slipped to a low of 1.5129 during the European trade as the Bank of England continued to see a risk for a double-dip recession. Central bank board member Andrew Sentance said that he's certainly "encouraged" by the rebound in GDP during an interview with CNBC, but went onto say that "there is some risk of a double dip" recession as the financial system remains fragile.

Mr. Sentance argued that he would not "rule out some new shocks emerging on the financial front which could set back the economy," and said that a "substantial fiscal tightening" would be required as the economic recovery gathers momentum. However, the rise in government spending will surely put additional pressures on the BoE to maintain a loose policy stance this year, and the MPC is likely to hold a dovish outlook for future policy going into the second-half of the year as they aims to balance the risks for growth and inflation. As a result, speculation for further easing would continue to drag on the exchange rate as investors scale back expectations for a rate hike later this year. Nevertheless, as the GBP/USD maintains the narrow range carried over from the previous week, the pair may continue to tend sideways over the remainder of the month as market participants weigh the prospects for future policy.

The Euro tipped lower against the greenback for the third day to reach a fresh weekly low of 1.3558, and the single currency is likely to maintain the narrow range carried over as investors mull over the risks for Greece to declare bankruptcy. Bundesbank board member Thilo Sarrazin said European policy makers should allow Greece to "declare bankruptcy" as the nation struggles to balance its budget, and argued that "there is absolutely no need to think about aid" during an interview with the Salzburger Nachrichten newspaper. As central bankers in Europe continue to voice their opposition for a Greek bailout, the ailing nation may look towards the International Monetary Fund for help as it aims to bring its public finances in-line with EU standards. Meanwhile, producer prices in Germany unexpectedly held flat in February, with the annualized rate slipping 2.9% from the previous amid expectations for a 2.8% decline, and subdued price growth is likely to lead the European Central Bank to hold a neutral policy stance going into the second half of the year as the Governing Council maintains its one and only mandate to ensure price stability.

The greenback advanced against most of its major counterparts, with the USD/JPY pushing to a high of 90.59 during the overnight trade, and risk trends are likely to dictate price action going into the North American trade as the economic docket remains fairly light. As equity futures foreshadow a higher open for the U.S. market, a rise in risk appetite could certainly weigh on the dollar as it remains the most popular funding-currency next to the Japanese Yen, but most of the major currencies are likely to maintain its current range going into Friday's session as market liquidity tapers off ahead of the weekend.

The Euro sunk over 80 pips in overnight trading as fears grew that the bailout package for Greece was unraveling. Speculation is that there is a greater than anticipated rift between Germany and Greece which may necessitate the troubled nation to seek IMF help.

Greek Prime Minister Papandreou in a speech in Brussels today stated that the country doesn't need aide at this time but is taking "IMF measures" and may need to seek help from the International lender of last resort if a European solution isn"t generated. Meanwhile, the Euro-zone January trade balance deficit widened more than expected to -8.9 billion against forecasts of -4.0 billion as exports rose 5.0%. Consistent demand from abroad has fueled the region's recovery and evidence of continued growth could be offsetting concerns over Greece's troubles. The EUR/USD has found support at the 20-Day SMA at 1.3636 and retraced some of its earlier losses. If we see equity markets shrug off the news then a further gains could follow. However, a break below support opens the door for a test of 1.3500.

The Pound has started to trade lower after a brief relief rally following the smaller than expected budget deficit in February. The better fiscal health has alleviated some concerns that the U.K. could follow its European counterparts down the path of lower credit ratings. Public borrowing rose 12.4 billion against expectations of 14 billion, but increased from 4.3 billion the month prior. However, the deficit continues to be a troubling issue for the country and a political lightening rod. Sterling weakness may continue, if markets choose to focus on the disappointing mortgage approvals in February. Approvals from the six largest banks fell to a nine month low of 48,000 down from 49,000 the month prior. Economists forecasted a print of 54,000 as prior quantitative easing efforts were expected to help loosen credit markets. The disappointing data could raise speculation that the BoE may need to add to their asset purchase program which had been a weighing factor before the last two pauses e by the central bank.

The dollar was mixed overnight as it gained against the Euro but has started to lose ground against the commodity dollars and sterling, which have been the outperformers leading into the day. U.S. consumer prices are scheduled to cross the wires today with expectations that inflation fell to 2.3% from 2.6%. A weak labor market which lost another 36,000 jobs in February has weighed on domestic demand, forcing retailers to continue discounting to attract customers. The potentially market moving release may have little impact following a FOMC rate decision, where policy makers pledged to keep rates low for an "extended period". The weekly initial jobless claims data could have more of an impact of price action as a return to job growth is seen as a key to the recovery and a prerequisite for a rate hike. The Philadelphia Fed manufacturing release should also be monitored as the sector has driven the recovery and evidence of sustainability could generate risk appetite and dollar weakness.

In a fully transparent market, a decision by the monetary policy authority to essentially maintain its expansive policy would be deemed a non-event. However, the markets we deal with are far from efficient as speculative interests have nearly as much impact on volatility and trend as tangible fundamentals themselves. With Tuesday's close, the Dollar Index would end the session at its lowest level since February 4th, when the currency's December/January rally finally lost momentum. And yet despite the dollar's obvious weakness, there is still hesitation to tip sentiment towards wholesale selling of the currency. This is not only evident in the maintenance of the Index's general congestion as the same restraint can be designated in the various pairings. EURUSD is the most obvious example of this concept (though the Index is heavily influenced by this liquid pair); but the same sentiment can be identified in GBPUSD's curbed advanced, USDJPY's congestion and AUDUSD's struggle to revive a bull trend. The responsibility for extending or curtailing this benchmark currency's retracement will likely fall to the risk appetite trends that define the market's speculative endeavors. Today, a significant burden was lifted from the mass shoulders when the EU announced its loose framework of support should any member need assistance and Standard & Poor's removed the fear of an imminent downgrade for Greece. So, while the world's economy is facing sluggish recovery and there are still many cracks in financial stability, this removes the most immediate threat from the equation.

Then again, a recovery in risk appetite isn't necessarily a death sentence for the dollar. Through much of the past two-and-a-half years, the US currency has had a very tight correlation to underlying risk appetite; but the reasoning for this link have shifted over time. In capital market's rally through 2009, the greenback maintained its function as a safe haven asset; but arguably, the more influential factor in its unfavorable trend was the extraordinarily low market rates. The record low three-month Libor rate (a standard for most market participants) for US money was even lower than its Japanese counterpart. In turn, this left the dollar competing as a funding currency when carry interest was steeped in an aggressive recovery. Recently, however, we have seen strong sentiment currents level off and market rates start to climb. If the outlook for returns (as benchmarked by interest rates) for the dollar gains over its counterparts, the currency could actually start to benefit from a rise in risk appetite. Yet, the rate at which this fundamental tightening takes place will be heavily dependent on monetary policy. Today, the outlook for the Fed's return to rate hikes was set back with the inclusion of a now infamous phrase. Though the FOMC would leave its benchmark rate unchanged and the statement itself was largely unchanged, many had expected the remark that rates would be held "exceptionally low" for an "extended period" would be absent as a natural progression in the policy stance. However, despite the pending expiration of lending facilities and the hike in the discount rate, it seems policy authority is not ready to take that hawkish turn. Going forward, this specific statement will be treated as a definable gauge of policy. When it is dropped, the outlook for hikes will be less than six months. With inflation concerns, it will be closer.

Through Friday's close, speculation that the dollar had tipped into a meaningful bear trend had garnered significant interest. Given EURUSD push to a four-week high after marking a high-profile break of 1.37 resistance, this was not an outrageous assertion. However, aside from this technical event (and a correlated push from the franc-denominated pair), there was little evidence to support a true trend development. In fact, few other majors would post such consequential price developments for the greenback. Furthermore, other asset classes had avoided breakouts that would supported a headwind in risk appetite. Both the Dow Jones Industrial and crude oil - investor scales in their own right - have yet to push fresh 16-month highs. This is an important relationship to monitor because investor sentiment is responsible for the current malaise in volatility and the currency's appeal as a safe haven is more absolute than any other major fundamental factor at this point. No doubt, the warning from Moody's that the United States was moving closer to losing its top AAA credit rating added to the debate over risk appetite/aversion. In its adverse market scenario, the credit rating agency predicted the cost of servicing debt could reach 15 percent of revenues for the government. Considering the limit for the highest evaluation of credit stability is 14 percent, such an outcome would lead to an unprecedented downgrade on debt that set's the world's benchmark for "risk-free" rates. If such a situation were to occur, the greenback would be roiled by the blow to one of its primary fundamental pillars. On the other hand, the likelihood of such a scenario actually playing out is slight. Under Moody's more probable estimate, debt servicing will run at 7 percent of spending this year - the highest among its peers but far from a downgrade. As such, the concern about sovereign debt risk is a general one. And, when risk is vague, the dollar invariably benefits for its standard safe haven qualities.

Outside the influence of risk trends, the outlook for growth and interest rate trends was developed through scheduled event risk. The most media-friendly indicator for the day was the industrial production report for February. The 0.1 percent growth through the period was tepid; but given the harsh weather over the month, the consensus for no change and the fact that this was the eight consecutive month of growth; the data would have an overall, bullish bias to it. The same general conditions can be ascribed to the New York regional activity report, the Empire Manufacturing survey. The assessment for the TIC flows report was not so optimistic however. The smallest balance of inflows for this report in six months leverages concerns over the government's ability to finance its deficits. Most concerning, the world's two largest holders of Treasuries (China and Japan) reported net sales of the paper through January. In fact, China has reduced its holdings for three consecutive months, the longest such since the end of 2007. Should this trend prove to be permanent, it will be a source of real concern. In the meantime, Tuesday's docket holds a round of notable indicators. The import inflation survey, housing starts and building permits numbers are notable; but the FOMC rate decision will really steal the show. No change in the benchmark is expected; but the subtle changes in commentary and non-standard policy make for better speculative swings.

The Euro halted the three-day rally against the greenback and slipped to a low of 1.3706 during the overnight trade, and the single-currency may face increased selling pressures going into the U.S. session as investors scale back their appetite for risk. Meanwhile, Bundes bank spokeswoman said that "neither the federal government nor the European Central Bank would have an access right" to its gold reserves, and argued that the proposals for a European Monetary Fund "would meet the Bundesbank's firm resistance if they were confirmed."

At the same time, European Central Bank board member Ewald Nowotny encouraged the economies operating under the single-currency to start consolidating their debts over the following year as he sees a risk for a "debt spiral," which would make balancing the budget "costlier and more painful," and went on to say that it is in Greece's interest to stay within the Euro-Zone. Nevertheless, the economic docket showed employment slipped 0.2% in the fourth-quarter after contracting 0.5% in the previous month, led by a 1.1% drop in manufacturing payrolls. As policy makers expect to see a moderate recovery this year, with governments taking unprecedented steps to bring their public finances back in-line with EU standards, the Governing Council is likely to maintain a cautious outlook for the region and may keep borrowing costs on hold throughout the second-half of the year as they aim to balance the risks for growth and inflation.

The British Pound pared Friday's rally, with the exchange rate slipping to a low of 1.5030 during the European trade, and the lack of momentum to cross back above the 20-Day SMA at 1.5239 may keep the GBP/USD within a narrow range over the week as investors weigh the outlook for future policy. Bank of England board member Kate Barker held a dovish tone during an interview with the Western Morning News and sees a possibility for "a quarter when GDP falls" as the private sector remains weak. She argued that the central bank does not expect a "double dip" as the expansion in monetary and fiscal policy continues to feed through the real economy, and said she would be certainly "surprised" if the economy slipped back into a recession. As a result, Ms. Barker expects the "recovery will be bumpy and fragile," and sees a risk for a "protracted period where credit is more expensive while there is pain from the public finance side" as the economic outlook remains uncertain.

The greenback strengthened against most of its currency counterparts, with the USD/JPY advancing to a high of 90.79, and the reserve currency may continue to appreciate going into the North American trade as it benefits for the rise in safe-haven flows. Nevertheless, industrial outputs in the world's largest economy are expected to hold flat in February after expanding 0.9% in the previous month, while the capacity utilization rate is anticipated to weaken to 72.5% from 72.6% in January. In addition, the Empire manufacturing index is forecasted to fall 22.00 in March from 24.91 in the previous month, while demands for U.S. financial assets are projected to increase $47.5B in January after rising $63.3B during the final month of 2009.

The Euro extended the advance from the previous day and rallied to a fresh weekly high of 1.3795 during the overnight trade as the economic docket reinforce an improved outlook for the region. Meanwhile, EU President Jean-Claude Juncker acknowledged that the Euro-Zone needs new instruments to avert future crises, but argued that creating a European Monetary Fund would not solve the debt issues with Greece and that it would be "meant for more broad-based crises."

Industrial outputs in the euro region surged 1.7% in January to mark the biggest expansion since August 1989, while the annualized rate increased for the first time since April as production jumped 1.4% from the previous year. However, wholesale prices in Germany tipped 0.1% in February, which fell short of expectations for a 0.3%, while the index advanced 2.1% from last year, and subdued price pressures could lead the European Central Bank to maintain a neutral policy stance going into the second-half of the year as they maintain their one and only mandate to ensure price stability. Nevertheless, Bundesbank President Axel Weber argued the Governing Council needs to conclude its emergency measures as soon as the recovery takes hold during a panel discussion in Germany, and the ECB may continue to normalize policy over the coming months as growth prospects improve.

The British Pound rallied for the second-day to reach a high of 1.5171, but the exchange rate is likely to maintain a narrow range going into the following week as the Bank of England is scheduled to release its policy minutes on Wednesday at 10:30 GMT. Meanwhile, BoE Chief Economist Spencer Dale held an improved outlook for the U.K. and said that there are "some tentative signs that nominal spending in our economy is starting to accelerate" as the expansion in monetary and fiscal policy continues to support economic activity. In addition, Mr. Dale argued that "much of the impact of our asset purchases is still to come through," and went onto say that "the most difficult decision will be to decide the timing of the withdrawal" of the emergency measures.

The greenback weakened across the board, with the USD/JPY slipping to a low of 90.16 during the European trade, and the reserve currency could face increased selling pressures going into the North American session as the economic docket is expected to reinforce a dour outlook for the world's largest economy. Retail spending in the U.S. is anticipated to contract 0.2% in February after rising 0.5% in the previous month, and the data could stoke a weakened outlook for future growth as private consumption accounts for more than two-thirds of the economy. Nevertheless, the U. of Michigan confidence survey is projected to increase to 74.0 in March following the unexpected drop during the previous month, while business inventories are forecasted to rise 0.1% in January.

The British Pound halted the three-day slide against the greenback as a Bank of England survey showed a rise in inflation expectations, and the currency may continue to retrace the sell-off from earlier this week as the daily RSI bounces back from oversold territory. However, as the MPC is scheduled to release its March meeting minutes next week, the GBP/USD is likely to maintain the narrow range carried over from earlier this month as investors weigh the prospects for future policy.

The BoE quarterly inflation attitudes survey showed consumer price expectations rose to an annualized rate of 2.5% from 2.4% in November to mark the highest reading since 2008, and the rise could lead the central bank to maintain a wait-and-see approach over the coming months as policy makers aim to balance the risks for the U.K. economy. However, as market participants speculate the MPC to expand its asset purchase program in the month's ahead, dovish rhetoric from the BoE could drive the exchange rate lower as policy makers continue to see a risk for a protracted recovery. Nevertheless, the National Institute of Economic and Social Research said economic activity increased 0.3% during the three-months through February after expanding a revised 0.6% during the previous month, but went onto say that the economy will not return to "its peak at the start of 2008 until 2012."

The Euro tipped higher for the second day, with the exchange rate rising to a high of 1.3666 during the overnight trade, and we may see the single-currency continue to trend sideways going into the U.S. trade as the European Central Bank maintains a cautious outlook for the region. The central bank's monthly report reiterated that interest rates remain "appropriate," and said that the large deficits in the economies operating under the single-current puts carries an additional burden on monetary policy. Moreover, the ECB pledged to "provide liquidity support to the banking system," while gradually phasing out its emergency measures, and went onto say that its decision to tighten its terms of lending will "help to avoid distortions associated with maintaining non-standard measures for longer than needed." At the same time, Governing Council member Yves Mersch said that the push for a European Monetary Fund is nothing more than "a lot of fantasy," and cautioned on using "central bank money to bail out fiscal deficits."

The greenback was mixed across the board, with the USD/JPY crossing back above the 50-Day SMA (90.50) to reach a high of 90.55, and risk trends are likely to drive price action going into the North American trade as the economic docket for the U.S. remains fairly light. The trade deficit for the world's economy is expected to widen to $41.0B in January from $40.2B in the previous month, while initial jobless claims are forecasts to weaken to 460K in the week ending March 6 from 469K. At the same time, continuing claims is anticipated to hold steady at 4500K for the week ending February 27, while the Fed is scheduled to release its Flow of Funds report at 17:00 GMT.

The Euro tipped lower against the greenback on Wednesday, with the exchange rate slipping to a low of 1.3545 during the overnight trade, and the single-currency is likely to maintain the narrow range carried over from the previous week as policy makers in Europe aim to support the economies operating under the fixed-exchange rate system. Meanwhile, European Central Bank board member Jose Manuel Gonzalez-Paramo said the Governing Council "will say something about the third quarter" in June during an interview with the Expansion newspaper, and went onto say that normalizing policy "will be a gradual process" as the central bank aims to balance the risks for growth and inflation.

Nevertheless, the economic docket showed Germany's trade surplus narrowed to EUR 8.0B in January from a revised EUR 13.4B in the previous month, led by a 6.3% drop in exports, while the current account slipped to EUR 3.6B from EUR 19.9B in December. At the same time, the final CPI report showed price pressures increased 0.4% in February amid an initial forecast for a 0.2% rise in inflation, while the annualized rate increased 0.6% after rising 0.8% during the month prior. As price growth remains subdued, the ECB likely to maintain a neutral policy stance going into the second-half of 2010, and dovish comments from the Governing Council would certainly lead investors to scale back expectations for a rate hike as policy makers expect to see an uneven recovery this year.

The British Pound pared the previous day's advance and slipped to a low of 1.4872 as the slew of overnight data reinforced a weakened outlook for Great Britain, and the exchange rate looks poised to test the yearly low at 1.4782 as the GBP/USD maintains the downward trend carried over from the previous month. Industrial outputs in the U.K. unexpectedly slipped 0.4% in January after rising 0.5% in the previous month to mark the first decline since August, while manufacturing weakened 0.9% amid forecast for a 0.2% expansion. As policy makers continue to see a risk for a protracted recovery, the Bank of England is likely to hold a dovish outlook for future policy, and speculation for further easing would certainly weigh on the exchange rate going forward. Meanwhile BoE's Adam Posen said that the central bank expects "growth will pick up from here" during an interview with Sky News, and noted that the MPC stands ready to take the appropriate steps "if something negative happens to the economy again."

U.S. dollar price action was mixed overnight, with the USD/JPY retracing the decline from earlier this week to reach a high of 90.47, and the lack of clear direction could leave the greenback range-bound going into the North American trade as equity future reflect a neutral bias for the U.S. open. Nevertheless, the monthly budget report is expected to show a $222.0B deficit in February following the $193.9B shortfall in the previous month, while wholesale inventories are projected to increase 0.2% in January after contracting 0.8% in the previous month. The data could stoke increase volatility in the greenback as investors weigh the prospects for a sustainable recovery in U.S., and conditions are likely to improve over the coming months as the expansion in monetary and fiscal policy continues to feed through the real economy.

The British Pound extended the previous day's decline to reach a fresh weekly low of 1.4938 during the European trade as Fitch Ratings held a cautious outlook for the U.K. economy, and the currency may continue to trend lower going into the U.S. session as investors curb their appetite for risk. Fitch said that the current fiscal adjustment in Great Britain is "too slow," and noted that the sovereign credit profit for the country has deteriorated "pretty sharply" as the economic outlook is "quite uncertain."

Meanwhile, Bank of England policy maker Kate Barker said that the economic recovery in the U.K. is "broadly on track" during her final speech as a member of the MPC, but expects to see a "bumpy" road ahead as households continue to face fading demands for employment paired with tightening credit conditions. At the same time, Ms. Barker noted that "the severe downside risks have diminished" given the extraordinary taken on by the government, but saw scope for inflation to "be a little below target at the two-year horizon." Nevertheless, the economic docket showed the RICS house price balance index increase 17% in February after rising a revised 31% in the previous month, which fell short of expectations for a 30% rise, while the trade deficit for the U.K. unexpectedly widened to GBP -7.987B in January from a revised GBP -7.010B to mark the highest reading since August 2008. Moreover, a report by the British Retail Consortium showed retail sales increased 4.5% in February after rising 1.2% in the month prior, and conditions are likely to improve going forward as the expansion in monetary and fiscal policy continues to feed through the real economy.

The Euro pared the previous day's decline and slipped to a low of 1.3552 overnight as Fitch held a cautious outlook for the region, and fears of a protracted recovery may continue to weigh on the exchange rate as policy makers expect to see an uneven recovery this year. Bundesbank President Axel Weber said that the rebound in economic growth remains subdued and expects price pressures to remain weak during a press conference in Frankfurt, and went onto say the recovery in Europe's largest economy remains "essentially intact" as the central bank aims to balance the risks for growth and inflation. Meanwhile, Fitch Rating does not expect any of the countries operating under the single-currency to withdraw from the fixed-exchange rate system as there remains good incentives to remain within the group, and went onto say that the risk for Greece to default on their obligations is "very low."

The U.S. dollar strengthened against most of its major counterparts overnight, while the USD/JPY crossed back below the 20-Day (89.97) and slipped to a low of 89.62 following a rise in risk aversion. As equity futures foreshadow a lower open for the U.S. market, the slump in risk appetite is likely to drive greenback higher going into the North American trade as the economic docket for Tuesday remains fairly light. The NFIB small business optimism is expected to increase to 90.0 in February, which would be the highest reading since September 2008, while the IBD/TIPP gauge for economic optimism is anticipated to advance to 47.0 in March from 46.8 in the previous month as the recovery gathers momentum.

The EUR/USD pulled back from the high (1.3701) during the European trade as investors scaled back their appetite for risk, and the single-currency could face increased selling pressures going into the North American session as equity futures foreshadow a lower open for the U.S. market. Meanwhile, French President Nicolas Sarkozy pledged to support Greece "if it were necessary" after meeting with Greek Prime Minister George Papandreou, and said that the states of the Euro-Zone stand "ready" and are "determined" to provide relief for the ailing economy operating under the single-currency.

Nevertheless, investor confidence in the Euro-Zone unexpectedly increased in March, with the Sextix survey rising to -7.5 from -8.2 in the previous month amid forecasts for a drop to -8.8, while the gauge for future expectations increase to 4.50 from 3.75 in February. However, a separate report showed industrial outputs in Germany advanced 0.6% in January, which fell short of expectations for a 1.0% rise, while the annualized rate jumped 2.2% from the previous year to mark the fastest pace of growth since April 2008. As policy makers continue to see a risk for a protracted recovery, businesses are likely to keep a lid on production and employment over the coming months, and the European Central Bank may hold a dovish outlook for future policy going into the second-half of the year as price pressures remain subdued.

The British Pound was little changed overnight, with the daily RSI holding at 34, and the GBP/USD may is likely to hold a narrow range going into the U.S. trade as the economic docket remains fairly light. However, we may see the exchange rate maintain the downward trend from the January high (1.6456) as market participants see scope for the Bank of England to expand its asset purchase program over the coming months, and dovish rhetoric from the MPC is likely to stoke increased selling pressures on the nation's currency as the central bank aims to balance the risks for growth and inflation. Nevertheless, the meeting minutes due out on March 17th is likely to spur volatility in the exchange rate after the BoE held the benchmark interest rate at 0.50% and maintained the target for its emergency program at GBP 200B, and a shift in the central bank's outlook could lead to a major breakout as investors weigh the prospects for future policy.

The greenback was slightly weaker overnight as the stock market rally in Asia spurred a rise in risk appetite, but mixed price action in the European markets could lead to a shift in market sentiment as we head into the U.S. trade. Nevertheless, as the economic docket for North America remains fairly light, the major currencies will certainly be exposed to investors temperament for risk, and a rise in risk aversion could lead to a rebound in the U.S. dollar as it continues to benefit from safe-haven flows.