Major Currency Pairs Analysis: April 8, 2012

The greenback pushed euro more to fall to a three-week low on Friday as Spanish and Italian bonds slumped and France borrowing costs increased, bubbling concern that the region’s debt crisis is spreading in the entire region. Spain’s 10-year bonds declined for a third day and pushed yield on the country’s benchmark debt seven basis points higher to 5.76 percent after an International Monetary Fund spokesman said the nation is facing severe challenges.

Italy’s 10-year yield surged seven basis points to 5.44 percent with the spread over bonds widening 12 basis points to 370 basis points. France auctioned 4.32 billion euros of 10-year debt at an average yield of 2.98 percent, up from 2.91 percent at the previous offering on March 1.

Borrowing costs for five-year and 15-year debt also increased. Tensions in the euro region are coming back and confidence in U.S. economy has resulted in a much stronger U.S. dollar. Euro weakened and touched below 1.3040. It might touch below 1.3000 levels as employers are expected to add 207,000 jobs when the U.S nonfarm payroll is released.
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GBP/USD

Sterling dropped 0.4 percent after U.K. manufacturing output surprisingly declined for a second month in February, suggesting the economy’s return to growth might be uneven. Factory output fell 1 percent from January, the most since April last year, the Office for National Statistics said. U.K. manufacturing, nine sub-sectors declined in February from January, three rose and one was unchanged.

The decline was led by transport equipment, rubber and plastic products and textiles. From a year earlier, factory output fell 1.4 percent in February. In contrast to manufacturing output, industrial production which accounts for about 15 percent of GDP surged 0.4 percent in February from January.

Rising output in mining, quarrying, oil and gas extraction and utilities such as electricity and water made the industrial production surged. Despite from the good figure from industrial production, stronger greenback overpowered sterling and touched below 1.5840 levels.Meanwhile, Bank of England policy makers maintained their asset- purchase target at 325 billion pounds ($517 billion) and kept their benchmark interest rate at a record low of 0.5 percent.
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USD/JPY

After lawmakers raised pressure for extra action by blocking a candidate for the bank’s board and renewing calls for a more proactive monetary policy, the Bank of Japan might expand stimulus this month. Parliament’s upper house rejected BNP Paribas SA economist Ryutaro Kono, described by Goldman Sachs Group Inc. (GS) as holding similar views to Governor Masaaki Shirakawa, who said that monetary policy alone cannot solve deflation.

The central bank might stand in favor of easing at a two-day meeting that will end 10th of April when price projections will reveal below 1 percent as targeted inflation. Japanese stocks pared losses on the decision by the upper house, remained down 0.5 percent after falling demand for Spanish bonds refocused attention on Europe’s debt crisis. The yen strengthened for a second day, touched below 82.20 per dollar. Uncertainties including the strong yen and the political mess are the reason why we cannot put optimism around Japan. There were no economic data released Thursday in Japan.
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USD/CAD

Canadian dollar strengthened and registered its first weekly gain in a month against the U.S. dollar as employers added the most jobs since September 2008 last month. Employment rose by 82,300 following a decline of 2,800 in February and lowered the unemployment level to 7.2 percent from 7.4 percent.The growth in unemployment should add to household spending that the Bank of Canada said last month has been rising faster than anticipated.

Governor Mark Carney said that high household debt loads and sluggish exports remain major risks to the expansion; he kept the key lending rate at 1 percent since September 2010 to boost demand. Full-time employment in Canada jumped by 70,000 and part-time positions grew by 12,400 in March. Over-all, about 42,600 jobs were created by private companies and 20,900 in the public sector. The number one sector whcih added the most jobs was health care, and social assistance added 31,500 jobs followed by 28,300 jobs for information, culture and recreation firms and manufacturing by 11,800, the fourth consecutive increase.

Workers designated by Statistics Canada as employees rose by 63,600 while the self-employed rose by 18,800 and Public administration work rose by 15,000 positions. The actual figure was really surprising, though the anticipated one was a gain but not that much. It made the loonie stronger than the greenback and gained 0.3 percent.
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