Daily Report: Euro Gains After G-7 Comments

The U.S. Dollar weakened against most of the majors after the Group of Seven deferred concerns over serious issues and set investors at ease by reiterating their commitment to a “market determined” currency exchange. However, the G-7 expressed concerns over major moves made by the Yen and indicated that investors had misinterpreted their statements by assuming the G-7 would allow the Japanese government to debase the currency. Officials added that Japan’s policies aimed at stemming deflation aren’t meant to influence the value of the currency. The statements prompted the greenback to drop 1 percent versus the Yen. On the data front, the U.S. surprised investors by announcing a Budget Surplus.

According to the Department of the Treasury, the Federal Budget Balance climbed to a seasonally adjusted $3.0 billion after posting a $300 million shortfall the previous month. In addition, the Dollar Index, which keeps track of the Dollar’s performance versus that of a basket of six other monetary units, dropped to 80.09. The Canadian Dollar rebounded from two week lows against its U.S. peer as the discounted Canadian crude oil rate reached the lowest in three months versus the American benchmark. The Loonie advanced for the first time in close to a week after Chinese firm Cnooc Ltd. obtained the green light to purchase the U.S. assets of Calgary-based Nexen, Inc., thereby eliminating the last hurdle preventing the Chinese conglomerate from acquiring the Canadian oil producer.

The Euro gained against the U.S. Dollar following a statement by the G-7 outlining that countries shouldn’t use monetary policy to affect the value of their currencies. The comments sparked demand for the Yen and for the Euro simultaneously. The British Pound extended losses against the Euro due to the possibility the Bank of England will lower its growth forecast when it issues the inflation report today. The Sterling traded at a 6-month low versus the U.S. Dollar following lackluster economic reports which confirmed that inflation remained at the highest rate since May. The U.S. Dollar dipped versus the Swiss Franc in anticipation of President Barack Obama’s State of The Union address and a G-20 meeting scheduled to begin on Friday.

The Yen advanced against the U.S. Dollar and the Euro after an official from the G-7 provided conflicting signals over whether the countries are worried that the Yen’s excessive moves will place trade relations in jeopardy. The Yen rallied against all of its peers as an official in Washington, who requested to remain anonymous, stated that Japan would be a topic of discussion when the G-20 meets in Moscow this weekend. But the Yen pared part of its advances after the G-7 said its words weren’t meant to single out one country in particular.

Lastly, in the South Pacific, the Australian and New Zealand Dollars remained steady against the greenback as speculators await President Obama’s State of the Union speech. Meanwhile, data issued by the National Australia Bank showed that the Index of Business Confidence rose from 2 to 3 in January.

EUR/USD- Euro Gains After G-7 Comments
The Euro rallied against the U.S. Dollar after the Group of Seven Industrial countries indicated that the nations should refrain from utilizing monetary policy to influence the price of their currencies. Early in the session, an official of the G-7 stated that the countries should not debase their currencies, and this left speculators jittery as the Yen has exhibited fast and dramatic declines. Today, investors will pay close attention to the release of Industrial Production data out of the Euro region.
EUR/USD" title="EUR/USD" width="624" height="324">
GBP/USD- Inflation Data Disappoints
The British Pound dropped to a six-month low against the U.S. Dollar after the Office For National Statistics indicated that the U.K.’s YoY Consumer Price Index stayed the same as in December, at 2.7 percent. Economists had predicted the Prices would rise 2.8 percent. Furthermore, reports showed that MoM, January’s CPI declined 0.5 percent while analysts anticipated a 0.4 percent drop. The inflation rate stayed above the Bank of England’s target of 2.0 percent and the central bank won’t have to write to the Chancellor of the Exchequer as the metrics posted at less than a percentage point above or beneath the target. Core CPI, which doesn’t include food, tobacco products or energy costs climbed 2.3 percent in January YoY. And lastly, the Retail Price Index increased 3.3 percent in the first month of 2013. The Sterling remained under pressure despite the fact that the figures revealed that inflation stayed at the highest since May. Rumors have it that the BOE will lower the growth forecasts today.
GBP/USD" title="GBP/USD" width="624" height="325">
USD/CHF- Greenback Slumps In Thin Trade
The U.S. Dollar declined against Switzerland’s Franc as investors traded cautiously before President Barack Obama delivered his State of the Union address. Investors kept a close eye on the President’s speech to try and ascertain whether lawmakers reached an agreement to prevent the automatic tax increases and reductions in spending from going into effect. On the data front, reports revealed that Consumer Price Inflation slipped 0.3 percent YoY and was 0.3 percent lower than the prior month. At the start of the week, a board member of the Swiss National Bank intimated that the Franc was still trading too high, and added that the 1.20 per Euro cap would remain in place.
USD/CHF" title="USD/CHF" width="624" height="330">
USD/JPY- Yen Rallies On G-7 Statements
The Yen strengthened against the U.S. Dollar as investors misinterpreted comments by the G-7. The Japanese currency rose dramatically after an official from the G-7 clarified that the earlier statements were meant to indicate that the Group of 7 nations was concerned over the “excessive moves” of the Yen. In the meantime, Prime Minister, Shinzo Abe said that he will tell the G-20 he intends to push for monetary policies aimed at stemming deflation. The currency remained strong on signs the G-7 accepts the weaker Yen as long as Prime Minister Abe’s government doesn’t pursue the devaluation of the currency.
USD/JPY" title="USD/JPY" width="624" height="331">
Today’s Outlook
Today’s economic calendar shows that Switzerland will report on PPI. The Euro region will release data on Industrial Production. In the U.K., the Bank of England will issue the Inflation Report. The U.S. will announce the Import Price Index, Core Retail Sales Retail Sales and MBA Mortgage Applications. New Zealand will publish the Business NZ PMI and FPI. Lastly, Japan will issue its GDP and perhaps the Interest Rate Decision.