Dollar recovers on positive housing data

USD

The dollar rose against most currencies on Thursday after positive housing data helped lift the outlook for the U.S economy. The Fed's Beige Book revealed a recovery in the housing sector which tends to 'lead the economy' which boded well for other sectors. Housing Starts (Dec) also rose well above expectations by 12.1% m/m when a 3.3% rise had been expected from -4.3% previously. Building Permits (Dec) m/m however only went up by 0.3% when a 0.5% rise had been expected from a much greater 3.7% previously. On the job front Initial Jobless Claims fell below expectations to 335k from 372k previously, but Continuing Claims rose to 3214k from 3127k when a less extreme rise to 3150k had been anticipated. The dollar pared gains after the Philadelphia Fed activity Index declined unexpectedly to -5.8 from 8.1 when a fall to 6.0 had been expected.


EUR

The euro rebounded on Thursday after a successful auction of Spanish bonds helped improve the outlook for the euro-zone. Spain managed to hit its maximum target of selling 4.5bn of the bonds and it managed it at lower borrowing costs. 5-year bonds saw yields fall to 3.77% from 3.99% at a similar auction last week. Yields for 2-year bonds also fell to 2.71% from 3.36% recently. The auction raised hopes that Spain might be able to sidestep requesting help from the ECB. The euro was given further impetus after the ECB published its Monthly Report which was overall upbeat and showed that “several indicators had stabilized, albeit at low levels.” Adding that: “financial market confidence had improved,” and “later in 2013 a gradual recovery should start.” Other data showed a fall in Construction Output (Dec) y/y to -4.7% from -3.3% previously and -0.4% from 0.0% m/m.


GBP

The pound weakened overall against the dollar and the euro but rose versus the yen on Thursday. Sterling weakened on concerns triggered after credit rating agency Fitch warned the U.K might lose its AAA rating if the budget in March showed an increased debt. Recent news that music and DVD high-street major HMV went into administration also weighed. Retail Sales data, released on Friday, will be closely scrutinized after the news of HMV's failure, and may be key in framing the outlook for the pound for the next few weeks. A poor print will almost certainly see sterling continue lower.


JPY

The yen reversed and continued falling on Thursday after the Economy Minister Akira Amari blamed the media for exaggerating his statements when he had said the yen should not be further devalued. He added that the currency was still correcting from an overbought extreme and 100 yen would be the level at which more careful consideration of the impact of a weaker yen might have to be considered by policy-makers, but this level had not been reached yet. Data out overnight showed a deeper than expected fall in the Tertiary Index to -0.3% from -0.1% previously when a 0.1% rise had been expected. Nationwide Dept Store Sales (Dec) fell by -1.3% from 1.1% and Tokyo Sales fell by -1.1% from 3.1% in November.