Finotec

Forex outlook:

The euro erased its earlier gains against the dollar on Tuesday, dropping from a seven-week high, after a report showed German producer-price inflation decelerated to the slowest pace in two years during January. The euro had gained on a BBC News report which said the Washington had contingency plans for air strikes to extend beyond Iran’s nuclear sites to most of the country’s infrastructure. The euro traded at $1.3136 from $1.3156 on Monday. It earlier advanced to an intra-day high of $1.3190, the strongest since 3 Jan.

The yen dropped for a third day against the dollar and the euro on Tuesday, and approached the lowest level in more than 14 years against the British pound as the Bank of Japan began a two-day monetary policy meeting under pressure from politicians to keep interest rates low. The yen last traded at 119.95 versus the dollar, 157.65 per euro, and declined to 234.57 per pound from 233.30, approaching the level of 241.52 reached on 23 Jan, the lowest since September 1992. Losses in the yen could be limited as calculations by Credit Suisse Group show a 62 percent chance of an increase to 0.5 percent, compared with 63 percent on Monday and 33 percent a week earlier. “If the BOJ tightens, the yen will strengthen in the short term,” said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets Inc. “The momentum will wane quickly. The market will soon come around to the idea that there won't be another hike” until the July upper house election.

Sterling rose against the dollar and the euro, supported by robust U.K. housing market data which reignited expectations the Bank of England will increase interest rates at least one more time this year, and as investors adjust positions ahead of the Bank of England minutes from the last policy meeting. The minutes are set for release today.

Investors will closely scrutinize any guidance form the Bank of Japan’s report for an indication of how fast and far Japanese interest rates may rise in the immediate future. The market is expecting the Fed to keep interest rates steady at its March meeting at 5.25 percent but investors are still eyeing the January U.S. inflation report, also due today. Later in the day, investors will expect the Fed policy meeting minutes.

Gold: Gold fell the most in six weeks to its lowest level for more than one-week of $659.20 an ounce on Tuesday as falling oil prices and a firmer dollar prompted investors to retreat, however, analysts said prospects for the precious metal look bright. Expectations that the central banks of Russia, Asia and Middle Eastern countries could diversify their reserves, some possibly into gold, will also underpin prices. Analysts said consolidation could take place this week because of the Lunar New Year holiday breaks across much of Asia have subdued the market.

Crude Oil: Crude oil fell on Tuesday as warmer weather moved into the eastern U.S. and Europe, curbing heating-fuel consumption. Crude oil fell 1.69 percent to $58.85 per barrel. Worries over Iran’s standoff with the West over Tehran’s nuclear program kept supporting markets. Tensions also are on the rise in Africa’s biggest producer, Nigeria, ahead of elections in April. A fifth of the country’s output is already closed because of militant attacks. The weekly EIA crude oil inventory report is postponed to be released on Thursday due to the Presidents Day holiday on Monday.

Pool position: