FX news and analysis 29th Mar

USD

The dollar rose on Thursday as a result of a mixture of less doveish commentary from Federal Reserve officials regarding quantitative easing (QE) and a renewal of euro-zone debt fears. Atlanta Fed President Denis Lockhart was optimistic about the outlook for the U.S economy and less concerned about the risk of contagion from the euro-zone spilling over and damaging the U.S financial system – contradicting to a certain degree commentary made on Tuesday by Fed's Dudley to Congress, in which he still saw substantial risk's emanating from Europe. Negative forecasts for growth in the euro-zone also hit risk appetite and further supported the dollar. On the data front, GDP 4th quarter revisions fell in line with expectations, Core Personal Consumption Expenditure (QoQ) (Q4) was also as expected at 1.3%; Personal Expenditure (4Q) also remained the same at 2.1%. A surprise easing in Initial Jobless Claims (Mar 29) to 359k versus 350k may have also supported the greenback after equities fell on the news.

EUR

 The euro continued to fall after risk appetite faltered following the release of worse than expected confidence data and after growth forecasts from a variety of sources pointed to future economic contraction. The Euro-zone Business Climate Indicator (Mar) fell by -0.30 when -0.16 had been expected and -0.16 previous; Euro-zone Consumer Confidence (Mar) was revised down a basis point from the -19.0 previous, likewise with Economic Confidence; Industrial Confidence fell to -7.2 when -5.8 had been expected; Services Confidence was the only gauge to ease after it rose to -0.3 when a rise of 1 basis point to -0.8 had been envisaged. German Unemployment actually fell to 6.7% from 6.8%. The Organisation for Economic Cooperation and Development (OECD), meanwhile revised down its forecasts for growth in the euro-zone and the central bank of Portugal likewise revised down the country's growth forecasts for 2012, raising fears the entire region could be getting deeper into recession. A sale of Italian debt resulted in marginally lower yields with stronger demand. E.U summit is expected to ratify merging of bailout funds to form one 700bn+ fund over the weekend.

GBP

The pound weakened on Thursday after a general fall in risk appetite hit demand and poorer then expected data reinforced a doveish outlook for monetary policy and emboldened the spectre of further QE. Nationwide House Prices YoY (Mar) n.s.a fell much more than expected, showing a -0.9% dip versus the 0.9% rise expected; MoM the data showed a -1.0% fall when a 0.2% rise had been forecast. Mortgage Approvals also fell dramatically to 49k when a 57.2k print had been anticipated and 57.9k was the print in the previous month. Consumer Credit rose to 0.4bn versus 0.2bn expected although Money Supply M4 MoM (Feb) fell by -1.9% compared to the 1.5% rise in the previous month and M4 annuliazed ex IOFCs grew at a slower 2.5% pace compared to the 3.9% rise in the previous month. The weak data and reduced Money Supply my have increased probability of BOE increasing its QE. Renewed euro-zone growth fears probably also weighed on sterling after OECD report showed a fall in growth expected in the region.

JPY

 The yen rose as risk appetite continued to fall as a result of renewed euro-zone debt concerns and recent poor data from the U.S, including a surprise rise in Jobless Claims on Thursday which dampened the outlook for the world's largest economy. Initial Jobless Claims (Mar 24) – fell by only 5k rather than the 14k expected. Negative growth forecasts, meanwhile, hit the other major power Europe after an OECD report lowered its outlook for the region and fears of a recession increased. There was still no data for Japan, which is scheduled for tonight but includes a lot of different metrics, such as Household Spending, which is expected to only fall by -0.5% rather than the -2.3% of the previous month; The Jobless Rate, which is expected to remain the same at 4.6%; CPI which is expected to fall from 0.1% to 0.0%; and Industrial Production which is expected to rise strongly by 3.7% versus the -1.3% previous.