FX news and analysis 8th Mar

USD

 The dollar fell broadly on Thursday after risk appetite made a comeback following the news that yet more financial institutions had agreed to the Greek debt-swap deal. The level of participation was now equal to nearly 50% of the value of the debt, which was the minimum amount required for the deal to go ahead. Riskier currencies - principally the euro - rallied on the news which suggested another hurdle in the bailout process had been successfully vaulted. The other main event on the calendar, the ECB rate meeting resulted in no change to policy, adding to the relief rally after previous speculation of a rate cut. In the press conference afterwards Draghi was overall cautious but positive in his outlook which further supported risk-on. On the data front U.S Jobless Claims rose by 8k to 362k when a 2k fall had been anticipated; Continuing Claims also rose to 3416k versus the 3400k expected. Challenger Job Cuts rose by 2.0% in February after the 38.9% rise in the previous month and the RBC Consumer Outlook Index increased by 2 basis points to 47.5 versus 45.1 previous.

EUR

The euro rose after the outlook turned positive for the Greek PSI deal. 32 more financial institutions pledged their support overnight, adding to the 12 already in the IIF steering committee, and the 5 banks which got behind the swap yesterday. As a result, an estimated 84bn of the 177bn debt (under Greek law) is now accounted for – which is almost the 50% minimum required for the deal. The other main event was the ECB rate meeting which revealed no-change in ECB policy and further helped risk appetite. There had been speculation the governing body might reduce rates to help support the euro-zone economy but ECB President Draghi was if anything rather hawkish for rates, saying he saw them remaining above the 2% target rate for the foreseeable future. Nevertheless ECB growth forecasts were revised down yet again. With the probable completion of the PSI in the coming days the euro may rise further as Greece inches towards its bailout.

GBP

The pound followed risk trends on Thursday, rising in tandem with the euro after it became clear the Greek debt-swap deal would most likely go through. Such was the focus on events in Greece that the Bank of England's rate meeting was generally overlooked. The meting revealed no change in monetary policy announced and the BOE kept rates unchanged – as widely expected. The crucial minutes for the meeting which reveal how members voted are released in 2-weeks time. Risk trends drove sterling higher after 32 more institutions which hold Greek sovereign debt said they would sign up to the proposed swap agreement. In addition, a Greek pension fund which had previously opposed the deal appeared to have a change of heart, helping to increase the amount in the 'yes' camp significantly. It is now widely accepted the deal will go through, although, there is a possibility CAC's will have to be invoked to oblige recalcitrant objectors.

JPY

The yen was one of the weakest currencies trading on Thursday after a combination of rising global risk appetite and poor data hit the safe haven hard. Recent concerns about whether the Greek debt swap deal would generate enough participation had weighed but the announcement by over 30 more institutions on Thursday that they would be backing the deal helped firm up risk appetite as the amount of debt expected to be swapped neared the 50% minimum requirement. Whilst it was still possible CACs would have to be invoked to force more holders to take part the immediate threat of failure, leading to a possible default had been removed. The yen fell as riskier currencies benefited. On the data front the yen weakened after Current Account Total (Jan) fell to -437.3bn yen vs -320bn expected and 303.5bn previously. The Trade Balance (Jan) also showed a worse than expected deficit of -1.381.6tr yen vs -1.370.3tr expected and -145.8bn previous. Expectations the BOJ might be prompted into further easing, further weakened the yen, after the release of worse-than-expected GDP data, which showed 4th quarter annualized GDP revised down a basis point to -0.7% and Nominal GDP (4Q) QoQ revised down to -0.5% vs -0.3% previous – although this was an improvement on the -0.8% of the previous quarter.