USD : Considering the rather light data line-up today fundamentalist’s in search of a reason for the dollar’s lacklustre progress would have to seek an assessment of risk trends for their answers, and in general a favourable global outlook endeared the riskier currencies and the safe-haven buck lost out. Even the interest rate hike in China announced yesterday could not sufficiently dent optimism to turn markets risk averse for long, whilst technicians saw their heads and shoulder’s patterns fail in despair as euro pairs continued to rally against their indicators’ warnings. The little data there was suggested uncertainty rather than recovery as Mortgage Applications bombed -5.3% in the first week in February compared to an increase of 11.3% the week before; whilst the various Gasoline and Crude Oil inventories which made up the rest of the docket showed an increase in idle stock which implied a slowdown in demand and business activity. At midday GMT the dollar traded at $1.3636 to the euro and $1.6058 to the pound.
EUR : The euro rallied as risk trends continued to support risk appetite, despite the release of a lower than expected German trade figures. The euro hit highs of 1.3720 against the dollar as it coursed higher. On the economic docket German trade balance figures showed a slight shrinking of the surplus but this failed to dent investor enthusiasm. Figures showed a fall to 11.9bn from 13.1bn in December and below expectations of 12.0bn. Exports remained steady, increasing by 0.5% although they underperformed expectations of 1.0% whilst Imports dived, falling by -2.3% compared to a 4.1% rise in December and an expected correction to 0.8%. Overall, speculation the ECB will loosen their tight monetary policy and the effects of commodity inflation continue to benefit the euro. At midday GMT the common currency traded at $1.3636 to the dollar and £0.8490 to the pound.
GBP : The pound traded mixed after poorer than expected trade data weighed but global risk trends may have supported and encouraged demand. An improvement in the global economic outlook led to a risk appetite rally which could have supported the pound – although recently the pound has not been reacting to risk appetite trends as readily as before - perhaps because it is becoming more of a safe bet itself. But it was the lacklustre economic docket which brought sterling back to earth. This showed an even wider gap growing in the trade deficit, possibly as a result of sterling’s strengthening over recent months making UK exports less competitive abroad. This may provide an interesting conundrum going forward as the BOE weighs up the effects of possibly increasing its interest rates, for if it goes ahead as many are speculating this will no doubt result in an even stronger pound being bid up - at the detriment of the export led recovery the real economy needs to pull itself fully out of recession. At midday GMT the pound trade at $1.6058 to the dollar and ¥132.61 to the yen.
JPY : The yen fell as investors’ appetite for risk increased and demand for the safety associated yen fell away. Competition from higher yielding but less safe currencies was not the only factor to weaken the yen as an improving outlook for the U.S also endeared the dollar where an interest rate hike is expected before one in Japan, which is still in the throes of deflation. At midday GMT the yen traded at ¥82.59 to the dollar and ¥112.60 to the euro.
by Joaquin Monfort, Analytical expert , Forex4You © 2011
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