FX news and analysis 7th Mar

USD

The dollar fell back slightly on Wednesday after a rebound in risk appetite caused by the news that several more banks had pledged their support for the PSI debt-swap deal, including Societe Generale SA, Assicurazioni Generali SpA and Unicredit Spa. This added to support already given by the 12 members of the IIF steering committee and increased the probability of a positve outcome for the deal by it's Thursday deadline. Data from the U.S was mildly positive overall. ADP Employment Change rose by 216k when median estimates had been 205k and this was above the 5-month moving average of 200k. It was an improvement on January's figure but less than December's. The dollar rose versus the yen on the news as a result of a decreased likelihood of Fed introducing more quantitative easing but failed to rise against riskier currencies as the data could also be interpreted as risk positive. It bodes well for Friday's Non-Farm Payroll's print which analtysts are expecting to be positive for the dollar. Other data out on Wedensday showed a rise in Unit Labour Costs (Q4) of 2.80% versus 1.20% expected and a rise in Non-Farm Productivity of 0.90% versus the 0.80% estimate.

EUR

The euro rose on Wednesday although its gains were capped by lingering concerns about the situation in Greece. Risk appetite lifted the single currency after more banks backed the debt-swap deal proposed by the Greek government to reduce its liabilities. Societe Generale SA, Assicurazioni Generali SpA, Unicredit Spa and German Development Bank KfW all gave their support for the deal. They joined the members of the IIF steering committee who had already pledged their support. This means an estimated 50-60bn of the 206bn in Greek debt (177bn under Greek law) is accounted for. An estimated 48bn of the debt is held by those who oppose the swap – including the Greek National Pension Fund - which means the actions of the holders of the outstanding 100bn remain a vast unknown. Greece needs 75% - or 152bn to agree to the swap which is voluntary, this means that as things stand almost all the rest of the bondholders not already accounted for must agree - or there has to be a turnaround by the Greek National Pension Fund. Indeed as things stand it seems unlikely PSI will go through, particularly because most of the 29bn not under Greek law will not be counted tomorrow and may even be exempt, which makes it even more difficult to achive the figure. Overall the outlook, therefore remains negative for the euro.

GBP

 The pound recovered on Wednesday after concerns eased over private bond-holder participation in the Greek debt-swap which is nearing its deadline. Gains were capped, however, by continued concerns as a large proportion of bondholders remain unaccounted for and the possibility they may reject the offere still exists. U.K data meanwhile was thin with only British Retail Consortium Shop Prices (Feb), which showed a 1.2% rise YoY vs 1.4% in January. The lacklustre release continued the trend for slightly below-par data which has dampened growth expectations and led to expectations of further monetary easing, although data has improved slightly in 2012 lessening the BOE's doveish stance slightly. It is not expected to announce further QE at its rate meeting on Thursday as it has not completed the purchases announced in February yet. Rates are also unlikely to change. Sterling will be subject to outside forces if anything as the week reaches a close. The PSI deadline on Thursday evening and Non-Farm Payrolls on Friday are the major events on the economic docket which will impact on the pound.

JPY

The yen partook of the general rebound in risk appetite after several new banks came out in support of the Greek PSI deal. It fell against the dollar, however, after U.S employment data showed an above-expectations rise in the number of private jobs created in February, which rose by 216k. This led to lower expectations the Fed would increase asset purchases to create jobs and stimualte the economy. Japanese data out today included the Leading Index (Jan) which rose to 94.9 but fell short of 95.0 expected; Coincident Index meanwhile fell to 93.1 when a drop to 93.4 had been forecast and the previous month had seen a 93.6 print. The yen still faces a busy economic docket tonight when the following data releases will be made: GDP 4th quarter revisions, which are supposed to show upward revisions of -0.2% vs the -0.6% previous; Trade Balance (Jan) (no forecast) and Current Account Total (Jan), which is expected to show a deficit of -320bn yen when 303.5bn was the print in the previous month. The yen ould be in danger of selling off quite heavily if the results are worse than anticipated; slower growth would spark concerns of further monetary easing and a bigger Current Account deficit of the impact of importing fuel because of energy crisis in the country post-Fukushima.