FX news and analysis 1st Mar

USD

The dollar traded mixed on Thursday, rising against the euro and the Swiss Franc but falling versus the pound and the yen. Data pushed the exchange rate one way and then the other, with Initial Jobless Claims showing a fall of 2k when a rise of 2k had been expected and Continuing Claims falling by 2k when analysts had estimated a 14k rise, with the resulting effect that the dollar strengthened because of the reduced likelihood of quantitative easing (QE). ISM Manufacturing data for February, however, showed a drop to 52.4 when a rise to 54.5 had been expected from a previous print of 54.1 and this led to some dollar weakness – although overall the moves were quite muted. The dollar mostly remained in consolidation mode after the sudden spike following the much less doveish testimony from Fed Chairman Bernanke to Congress on Wednesday, and it looked poised in some pairs to pierce higher in the following days providing data was supportive.

EUR

The euro fell on Thursday as markets digested the news that the ECB had loaned 530bn euros in cheap loans to the European banking sector effectively flooding the market with euros and devaluing the currency in the process. The less doveish stance adopted by the Fed Chair and a member of the Bank of England's policy committee diverged with the ECB's more accommodative stance encouraging further relative weakness in the single currency. Thursday's data showed a rise in the euro-zone Unemployment Rate to 10.7% from 10.4% expected and 10.4% previous. Euro-zone Manufacturing PMI (Feb) meanwhile stayed the same at 49.0; German PMI rose to 50.2 versus 50.1 expected and 50.1 previous; French PMI fell to 50.0 when 50.2 had been expected and 50.2 was the previous print; Italian PMI, however, rose 10 basis points to 47.8 when a much smaller rise had been forecast. The data seemed to indicate that the economies of the euro-zone were still facing substantial headwinds resulting in flat-lining growth for most.

GBP

The pound rose on Thursday, as a result of a less doveish outlook, following commentary yesterday from a Bank of England official who cast doubt on whether the central bank would increase its asset purchases since the economy had appeared to recover enough to grow without the need for more stimulus. The BOE's stance was in contrast to the ECB's ultra-accommodative policies as exemplified by the recent provision of over a trillion euros in cheap loans for European banks. However, it was more in line with the U.S Federal Reserves policies which have also become less accommodative – although even against the dollar the pound rose. On the data front, Nationwide House Prices YoY in (Feb) rose to 0.9% from 0.3% expected and 0.6% previous and 0.6% MoM vs 0.3% expected and -0.3% previous; Manufacturing PMI (Feb), meanwhile, fell to 51.2 vs 52 expected and 52.1 previous.

JPY

The yen strengthened a little on Thursday after risk aversion increased following a U.S government report on spending which raised doubts about the strength of the U.S recovery after it showed no increase in consumer spending for the third month in a row. Sentiment was further dampened after ISM Manufacturing in the U.S also showed a below expectations print and in Europe the euro-zone unemployment rate rose 3 basis points to 10.7% which did not bode well for the ongoing debt crisis as more unemployed weigh on the system and its resources. Data from Japan meanwhile was quite positive: Capital Spending (4Q) rose 7.6% vs -6.5% expected and -9.8% previous, Capital Spending Excl Software (4Q) rose 4.9% vs -7.4% expected and -11.0% previous and Corporate Loans and Discounts remained unchanged. The outlook for the yen remains under pressure, however, particularly because of rising oil costs since it now has to import all its fuel, although the outlook for its exporting companies remains relatively strong.