The Dollar consolidated towards the lower end of its recent ranges against most of its major counterparts on Friday.
Stocks and commodities are off to a shaky start after the most recent reading of US GDP fell short of expectations at 2.8%, but was much higher than the 1.8% pace recorded in the third quarter. A disappointing holiday shopping season and government spending cuts led to the underperformance, but the data does provide some validation for the Fed’s decision to keep rates on hold for the next two to three years. Nevertheless, University of Michigan confidence registered better than expected at 75 versus 74 in the previous reading. Dovish commentary from Fed policymakers is also taking its toll as expectations grow that QE3 may be closer than previously thought.

The Euro made gains for the second week against the USD as confidence builds that a deal to extend a second bailout to Greece is at hand. EU Economic and Monetary Affairs Commissioner Olli Rehn, told reporters that Greece was “close” to reaching an agreement with its creditors, but final private sector involvement remain unclear.

The common currency’s upside potential also remains limited as investors begin to price in further monetary easing in the coming months. ECB President Draghi told reporters at the World Economic Forum in Davos, Switzerland that they don’t yet know if the Bank’s record injection of liquidity into the banking system is finding its way into the real economy. He went on to say that there is a lag, but that “we know for sure we have avoided major credit crunch and a major funding crisis.”

While the central bank’s operations may have eased improved interbank credit conditions, a report released this week showed that loans to households and companies contracted by 0.7%, the most since the records began in 1991. The ECB will offer a second round of three-year interbank loans on February 28th.

Data released 30^th January 2012

EU      10.00 Economic Sentiment (January)

Industrial / Services / Construction

US      13.30 Personal Income / Consumption (December)

Core PCE

The Dollar declined against the Pound and the Euro following a pledge from the Fed to keep interest rates exceptionally low until 2014. With US assets yielding all but nothing for at least the next two to three years, investors are seeking higher returns elsewhere. Further weighing on the dollar, Fed Chairman Bernanke paved the way for a third round of large-scale bond buying should unemployment remain at or near its current 8.5% and inflationary pressures continue to ease. While global economic growth continues to fall short of expectations, US data has generally surprised to the upside, leaving investors questioning the Fed’s dovish stance.Durable goods orders fell to 3% in December, down from 4.3% in the previous month, but much better than the 2% expected. Weekly jobless claims ticked slightly higher to 377k versus last week’s 356k, but the measure remains well entrenched below the key 400K barrier. Leading indicators also fell short of expectations at 0.4%, but were higher than last month’s downwardly revised reading of 0.2%.Investors will pay particularly close attention to GDP data due today, fearing that the Fed announcement must mean that they are positioning for a shortfall the market has not anticipated. While the Fed’s lax monetary policy will weigh on the dollar in the short term, the general outperformance of the US economy will provide support in the longer term.

The Euro made gains against the Pound while remaining relatively unchanged against the Pound  as European policymakers inch closer to brokering a deal to provide Greece with further financial aid. It appears that European officials understand the severity of the situation should action not be taken, and while a deal is ultimately expected, investors are remaining largely on hold until a final deal is brokered.EU Finance Minister, Jean-Claude Junker told reporters this morning that “there’s no default without contagion. It is in everyone’s interest to avoid a Greek default.” However, avoiding the spread of contagion is only half the battle as all estimates point to a mild recession in Europe in 2012. Nevertheless, the common currency is finding support this morning, albeit within its recent ranges.

Data released 27^th January 2012

EU      09.00 M3 (December) 3 Month Moving Average

US      13.30 Advance GDP (Q4)US

14.55 Final Michigan Sentiment (January)

The Dollar made gains against the Pound and the Euro as declining stocks and on-going worries over Eurozone debt are outweighing a possibly dovish stance from the Fed.

Fed Chairman, Ben Bernanke said the US central bank might consider further monetary easing through bond purchases while further delaying the timing of an eventual interest rate rise until late 2014, some 18 months later than previously forecast. The dovish Fed tone could well dominate forex markets today, especially as the economic calendar is mostly second tier data.

The Euro declined against the Pound and the Dollar after the ECB made it clear that they are opposed to restructuring Greek bonds. S&P added further severity to the situation when it released a statement that a Greek default was all but a foregone conclusion, even should policymakers and the private sector broker a deal over a second bailout package. German Chancellor Merkel cast doubt over the sustainability of the current situation, telling reporters that “We haven’t overcome the crisis yet. Of course, there’s Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.” The grim outlook was further compounded yesterday when the IMF downgraded their assessment of global growth for 2012, adding that Europe will likely slip back into a mild recession.

Data released 26^th January 2012

UK      11.00 CBI Distributive Trades Survey (January)

US      13.30 Durable Goods (December)

US      13.30 Initial Jobless Claims (w/e 21st January)

US      15.00 Leading Indicators (December)

US      15.00 New Home Sales (December)

The Governor of the Bank of England, Sir Mervyn King, has urged against “despair” because “all crises come to an end” as official figures were expected to show that Britain is heading back to recession.

The Dollar made gains against the Pound and was choppy against the Euro.

Volatility returned to the market with the EU finance ministers rejecting the Greek bondholders 4.0% coupon demand on a debt swap. Stocks dropped in Europe and in the US and helped the Dollar gain on safe haven demand. The dip was shallow though and most markets pared losses into the end of the session.  Looking ahead, FOMC Interest Rate meeting forecast to hold at 0.25%. Focus on the FOMC Statement and Press Conference afterwards.

The Euro made gains against the Pound and the Dollar yesterday bolstered by optimism that Greece was set to cut a deal with its private sector investors on a debt swap. However, with little sign of a resolution as yet, the euro gave up some of its gains versus the dollar and other majors in early morning trade. The talks are now expected to be concluded by the end of this week. The main stumbling block at this point seems to be over what coupon creditors will receive on the planned new bonds. Some official say that Greece will pay not more than 3.5%, while creditors are pushing for more than 4%. European Union officials have stepped up pressure on Greece and its creditor banks in a complex game of three-way brinkmanship, signalling that they will allow a Greek default to run its course unless both sides accept more pain.

Data released 25^th January 2012

UK      09.30 BoE Minutes of 11th – 12th MPC Meeting

UK      09.30 Prelim GDP (Q4)

UK      11.00 CBI Industrial Orders (January)

US      15.00 Pending Home Sales (December)

US      17.30 FOMC Interest Rate Announcement

US      19.15 FOMC Press Conference

This week the BoE meets, and there is speculation that they will further their asset purchase program, or quantitative easing, to cap borrowing costs. Despite this, sterling still strengthened roughly 2% versus the dollar this past week as it looks like Greece might come to the table with an acceptable offer to avoid default.

The Dollar declined against the Euro and the Pound yesterday driven by swings in risk sentiment.  The tone for the week could well be set by the extent of progress in the talks on Greek debt restructuring. In the US, GDP data for Q4 are up for release. A growth rate of 3.0% is expected, up from 1.8% in Q3. Stronger consumption growth, a boost from net exports, and positive contribution from inventories will lift GDP growth.

The Fed meeting on Wednesday will be the first meeting with Fed interest rate projections, and it will be very interesting to find out when the Fed expects the first interest rate hike, and how much tightening is expected in the following years. The first hike is anticipated to come in the second half of 2013. Other releases this week will be durable goods orders and home sales and prices.

The Euro made gains against the Pound and reached its highest level against the USD in nearly three weeks on hopes that Greece and Eurozone banks could rise above their mountain of debt. Germany and France are pressing for talks between Greece and its private creditors to cut its soaring debt to sustainable levels and said they were committed to seal a new bailout arrangement for Athens by March to avert a default.

Official news sources stated that the several rounds of meetings between Greece and its private creditors are collaborating a deal which would bring a loss of 65-70% to private bondholders of Greek bonds. In addition, European stocks hit their highest close since early August, largely due to the rally in Eurozone banks after France and Germany called for a relaxation of capital required from global banks to prevent a credit crunch. Despite its recent sharp gain in stocks, European banks are facing cautious investors who fear the risks of potential debt write-offs.

Data released 24^th January 2012

UK                  09.30 PS Net Borrowing (December)

EU                  10.00 Industrial Orders (November)

Global            15.00 IMF World Economic Outlook (January Update)

The Dollar declined against the Pound and the Euro yesterday. The Dollar index is down for a third straight day as weak housing and manufacturing data outweighed a strong labour market report, prompting investors to increase odds that the Fed may yet pursue a third round of quantitative easing.

CPI data registered in line with expectations at just +0.1% month over month, leaving the Fed room to keep monetary policy on hold for the foreseeable future. Housing starts fell to 657k and the Philly Fed Index to 7.3, but weekly jobless claims tumbled to 352k, down 50k from last week. Moreover, positive developments in Europe as struggling Eurozone member’s auction off a large load of debt without a hitch are generally encouraging risk appetite.As such, investors are taking the opportunity to book profits on the dollar’s precipitous rise over the past several weeks, but weakening global economic fundamentals continue to support the longer term trend for a strong dollar, at least for the time being.

The Euro made gains against the Pound and the Dollar as investors, short on the common currency, closed out positions after a Spanish debt auction drew more demand than needed. Nevertheless, the long term view for the EUR remains shaky at best with investors now pricing in a breakup of the Eurozone by the end of the year with a 37% probability, up from 32.5% just one week ago.

With strong data released in the US, and with stocks and commodities building on yesterday’s gains, the EUR is enjoying this brief reprieve. However, funding costs remain a cause for concern and the deadline for a second Greek bailout of March 20th is fast approaching.

Data released 20th  January 2012

UK      09.30 Retail Sales (December)

US      15.00 Existing Home Sales (December)

The Dollar declined against the Euro and the Pound as strong economic data and debt auction results in the Eurozone encourage investors to assume riskier positions. While the Dollar Index is 0.53% lower this morning, it remains near the top of its recent ranges supported by resilient economic data out of the US and continued struggles in the Eurozone.

On the economic data front, the Empire Manufacturing Index came in better than expected at 13.48 and the Philadelphia Fed survey on Thursday is expected show further improvement. Inflation data is also on tap for the week ahead, and is expected to show a decline in the annual rate to 3.1% from 3.4% whereas core inflation should remain unchanged at 2.2% y/y and rise 0.1% m/m. This week also offers a batch of housing data with the NAHB housing market index and housing starts on Wednesday and Thursday respectively. Both have shown improvements in recent months, suggesting that the housing market is finally bottoming. PPI and Industrial Production will also be released later this week, with a modest improvement expected in both. While this week’s releases will help set the tone for the US economy for at least the first half of the year, the currency market will remain largely focused on the developing situation on the other side of the Atlantic.

The Euro made gains against the Pound and the Dollar yesterday receiving a respite from relentless selling pressure on positive news from the region and optimism over the global economy. The single currency rose to peaks against the Dollar after Germany reported that its ZEW economic sentiment index rose by the largest amount on record to -21.6 in January from -53.8 previously. The strong improvement in German outlook raised hopes that Europe’s largest economy is showing resilience despite the region’s challenges. Pressure on the EUR also eased after yields on Spanish and Greek debt fell following successful auctions in both nations. Recent positive  news serves as a reprieve from the cloud hanging over Europe. Ratings agency S&P continued last week’s sovereign downgrades of European countries which stripped France of its top rating to AA+, by downgrading Europe’s EFSF rescue fund to AA+ yesterday which sent the euro to lows at $1.2624. With little end in sight to its challenges, pressure on the euro is likely to continue with gains such as those seen today likely proving temporary.

Data released 18^th January 2012

UK      09.30 Claimant Count (December)

ILO Unemployment (November)

UK      09.30             Average Weekly Earnings (November)

Ex Bonuses

US      13.30 PPI (December)

Ex Food & Energy

US      14.00 TICS Capital Inflows (November)

US      14.15 Industrial Production (December)

Capacity Utilisation

US      15.00 NAHB House Builders’ Sentiment (January)

The Dollar made gains against the Pound while remaining unchanged against the Euro as equities and commodities rebound and expectations for global growth improves. A recent report showed that the global economy could expand by more than 4% this year, compared to a long-run average of just below 3%. While the US economy has stuttered in the first quarter of 2011, investors anticipate a rebound in the second half of the year. While this improved sentiment usually benefits higher-yielding currencies, the recent steep sell off in parallel financial markets has boosted the dollar in its role as a relatively safe investment.

The Euro made gains against the Pound while remaining relatively unchanged against the Dollar  despite heightened fears of debt default in the region’s periphery economies. Recently ECB officials ruled out a Greek debt “restructuring”, butting heads with regional political leaders. ECB member Juergen Stark told reporters that, “a Greek debt restricting is not the appropriate way forward – it would create a catastrophe.” Member Bini Smaghi added that “a solution for reducing debt, but not paying for it will not work.” A “soft restructuring” in which the maturities of debt instruments are extended without changing the principal and interest rate is now being discussed, but it remains to be seen if investors would voluntarily accept the delayed payments. While a debt default is not imminent, investors are finding it difficult to justify long euro positions with such uncertainty ahead.

Data released 19.05.2011

UK 09.30 Retail Sales (April)

UK 11.00 CBI Industrial Orders (May)

US 13.30 Initial Jobless Claims (w/e 14th May)

US 15.00 Existing Home Sales (April)

US 15.00 Leading Indicators (April)

US 15.00 Philly Fed Business Survey (May)

The Dollar remained relatively unchanged against the Pound and the Euro yesterday as the empire Manufacturing Index released this yesterday expanded at a slower pace than anticipated in May as the cost of raw materials surged. The New York general economic index fell to 11.9 from a one-year high of 21.7 in April.

The main focus will be Thursday’s Philadelphia Fed survey, which fell quite strongly last month. It also disappointed sharply last year but the weakness was never mirrored in the ISM. A slight rebound to 20 in May from 18.5 in April is expected as other indicators such as factory orders still point to decent growth in manufacturing.

The Euro declined slightly against the Pound while remaining relatively unchanged against the Dollar amid lingering questions over a rescue package bailout for Portugal and a debt restructuring for Greece.

The euro has marked a steady decline from last week’s highs above $1.44 as market participants grew increasingly cautious about the fiscal status of Portugal and Greece. Last week’s GDP report showed European growth at 2.5% in Q1 from the previous year but also highlighted the uneven nature of the recovery as Germany and France accounted for the bulk of growth. The euro is likely to remain under pressure awaiting the workout details for Portugal and Greece but also supported by prospects for an interest rate hike as early as next month.

Data released 18.05.2011

UK      09.30 Claimant Count (April)

ILO Unemployment (3 Mths to March)

UK      09.30 Average Weekly Earnings (3 Mths to March)

Ex Bonuses

UK      09.30 BoE Monetary Policy Committee – Minutes of 5th/6th May Meeting

US      19.00 FOMC – Minutes of 26th/27th April Meeting

The Dollar made gains against the Euro and the Pound during UK trading yesterday. Later on S&P put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt. While the agency maintained the country’s top credit rating, it said that authorities have not made clear how they will tackle long-term fiscal pressures. S&P said there is at least a one-in-three chance that it could cut its long-term rating on the U.S. within two years.

U.S. stocks sank the most in a month off the S&P outlook, with the DJ falling over 200 points. Gold prices rose 0.7% to $1,496.10 an ounce and the dollar dropped versus the yen. In the US the key event over the next two weeks will be the FOMC meeting on April 26-27. This will be the first meeting where Chairman Bernanke will host a press conference following the release of the statement.

Comments on inflation are likely to be the most interesting and the statement should once again stress that the FOMC will pay close attention to inflation expectations. Otherwise, housing data will dominates the calendar and following the broad-based weakness in February, some recovery in March is to be expected. Further, we will get the first estimate of Q1 GDP growth (4/28), which is expected to have slowed significantly from Q4 ‘10.

The Euro declined against the Pound and the Dollar on a renewed wave of risk aversion. The Eurozone periphery economies’ continued struggles with sovereign debt has investors worried that a country such as Greece or Ireland could still default on its debt, despite massive financial loans from their peers. Further compounding the situation is increasing opposition within the “core” economies. A contentious election over the weekend could set up a scenario in which Finland will reject support for Portugal’s request for a “bailout” loan. With the potential rejection raising questions of solidarity, investors have sought the safety of currencies like the CHF, JPY and USD. A selloff in global stocks has also weighed on the EUR and other higher yielding currencies after S&P downgraded the outlook for US debt to negative. While higher interest rates initially provided support for the common currency, investors are now focused on economic growth within the Eurozone and the bloc’s solidarity.

Data released 19.04.2011

US      13.30 Housing Starts (March)

Permits