Major Currency Pairs Analysis: April 16, 2012

The euro weakened against most of its major counterparts due to rising bets that the European Central Bank won’t restart its government bond-purchase program even as Spanish credit-default swaps surged to a record and U.S consumer prices rose beyond what analysts anticipated. It fell for a second week against the U.S dollar and the yen after one of the members of ECB governing council, Klaas Knot indicated that there is no good reason to buy Spanish securities.

The cost of insuring against a Spanish government default rose to a record 503 basis points, according to CMA prices. A basis point on a credit-default swap protecting 10 million euros ($13.1 million) of debt for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

Further, Spain’s 10-year government bonds declined and pushed their yields up as much as 18 basis points or 0.18 percentage point to 6 percent.  In this month, they have jumped more than 60 basis points as investors sought safer assets.  Moreover, U.S Consumer prices continued to rise in March although the pace of growth slowed compared to the previous month.
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GBP/USD

Despite from the recent surging in U.K. factory output prices and raw material costs from more than economists forecast in March, still showed less-than-projected inflation. The price of goods at factory gates increased 0.6 percent from February, the Office for National Statistics said in London. The growth in producer prices sold mainly reflected from an increase in petroleum products, tobacco, alcohol, and food. Petroleum product prices showed a 2.4 percent rise for March. The increase exceeded economists' forecast of a 0.5 percent rise.

Excluding food, beverages, tobacco and petroleum, the annual core output price inflation fell to 2.5 percent from 3 percent in February. Likewise, the monthly rate dipped to 0.1 percent from 0.5 percent. Further, figures from U.S. consumer price index pushed the sterling lower. Consumer prices continued to surge last month though the pace of growth slowed compared to the previous month. It surged 0.3 percent in March compared to the 0.4 percent increase posted in February.

Energy prices rose by 0.9 percent in March, reflecting a significant slowdown from the 3.2 percent increase seen in February. Even from recent declines in oil prices due to a lesser demand it continues to contribute in surging of consumer prices. The food index gained 0.2 percent with rising costs for meats, poultry, fish and eggs offset somewhat by decreases in prices for vegetables, bakery products and dairy. That figure made the greenback stronger against all its major counterparts. Sterling dropped 1.2 percent from 1.5961 to 1.5844.
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USD/JPY

The yen advanced for a second week versus the after the Bank of Japan refrained from further moves to stimulate growth. The Bank of Japan decided to keep interest rate between zero and 0.1 percent and left unchanged the 30 trillion yen ($370 billion) asset-purchase fund. No board member suggested additional stimulus at the two-day meeting last week. They injected 10 trillion yen ($121 billion) and set 1 percent inflation goal.

Indeed, it was helpful as the yen slumped from a post war high yet export companies including Toyota Motor Corp. demanded further weakening of the yen to help the export industry. Recently, the Bank of Japan became a bit more neutral and gave support to the Japanese yen as it reduced expectations for easing. The value of USD/JPY was ranging between 81 and 80 levels since 11th of April.
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USD/CAD

The Canadian dollar weakened a bit against the U.S dollar counterpart as consumer price index showed a great figure last Friday. The loonie closed at 99.83 cents from 99.43 cents last Thursday. It weakened after U.S. Consumer prices continued to rise in March although the pace of growth slowed compared to the previous month.

The Consumer Price Index increased by 0.3 percent compared to the 0.4 percent increase posted in February. Reflecting a substantial slowdown in demand few days back, energy prices rose by 0.9 percent in March from 3.2 percent increase seen in February. The data was made a little good impact in U.S dollar as consumer prices index is one of the gauges on a healthy economy. Inflation is anticipated in 2% percent this year.
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