• USD: Mixed, jobless claims decline, trade deficit narrowed by 6.6%, global recovery may be slowing
  • JPY: Lower, Q4 GDP revised lower, BOJ ease speculation
  • EUR: Higher, rumor of Russian intervention, SNB reaffirms its intervention policy
  • GBP: Higher, inflation expectations at a two-year high
  • CAD and AUD: AUD & CAD lower, China rate hike fears, Canada's capacity use and trade balance improve

Overview

The USD and JPY opened lower Thursday despite weaker equity market trade and a modest dip in risk appetite as European and US equity markets traded lower. The USD received a temporary boost after the release of economic data from China which showed any unexpected rise in inflation and strong retail sales and industrial production. China's inflation rate rose to a 16 month high accelerating by 2.7% in February. The Chinese inflation report generates speculation that China will raise interest rates sooner than expected as the Chinese economy may be overheating. Chinese rate hike fears dampened risk appetite, pressured equities and supported the USD. USD erased early gains with GBP supported by a BOE inflation survey which shows that inflation expectations in the UK are at a two-year high. Rising UK inflation expectations may dampen speculation that the BOE will expand its asset purchases. EUR traded mixed and remained range bound. The EUR was initially supported by report of Russian intervention to slow ruble gains and the SNB’s reaffirmation of its intervention policy. Commodity currencies were mixed with AUD gains limited by risk of a rate hike from China and report of weaker than expected Australian employment data. CAD traded lower despite report of stronger than expected Canadian capacity use and a bigger than expected Canadian trade surplus. JPY traded lower pressured by report of a downward revision in Japans Q4 GDP and by BOJ ease speculation. S&P says that the USD will maintain its reserve role status as long as US financial markets are sound and government spending is sustainable. S&P went on to say that the US reserve currency status cannot be taken for granted. According to S&P foreign investors could begin to reduce USD holdings if the US fails to address its fiscal deficit and debt. S&P said that the US could lose its AAA credit rating if the government did not address the fiscal outlook. There was limited reaction to report that US February foreclosures were up but were the smallest in four years. US economic data was mixed with jobless claims posting a modest decline and the US trade deficit unexpectedly narrowed in January. The narrowing of the US trade gap reflects a bigger drop in imports than exports. Exports declined for the first time in eight months. USD traded higher after the release of the US trade balance as the report generates concern the global recovery may be slowing. Focus turns to Friday's release of Michigan consumer sentiment.


Today’s US data:

US jobless claims for week ending 03/06 declined by 6k to 462, a reading of 460k was expected. January trade balance narrowed to -37.3bln, a reading of -40.3bln was expected. Exports fell by 0.3% and imports fell by 1.7%.


Upcoming US data:

On March 12th February retail sales and March University of Michigan consumer sentiment will be released along with January business inventories. Retail sales expected flat compared to 0.5% rise last month. Michigan consumer sentiment is expected at 73.5 compared to 73.6 last month and business inventories are expected to rise by 0.2% compared to 0.2% decline last month.