FX Report 19 February 2016

Morning Users;
we arrived at the weekend ; see today’s currency analysis.
The Euro dipped lower in Europe on Thursday with downward pressure from selling against Sterling and other major crosses. ECB minutes from January made reference to downside economic risks and, although there were also warnings against excessive pessimism, there was a debate whether the risk of a global slowdown warranted a pre-emptive easing. These comments reinforced expectations of further action in March which maintained some net downward pressure on the Euro.  US jobless claims were lower than expected at a three-week low of 262,000 in the latest week from 269,000 which should bolster confidence in the labour-market as claims have dipped during February. The Philadelphia Fed index improved only marginally to -2.8 from -3.2 and the components were negative which will maintain concerns surrounding manufacturing.  San Francisco Fed President Williams maintained a generally optimistic tone and was not changing his economic forecasts. He also commented that upward pressure on wages are stronger than suggested by headline numbers. The latest CPI data will be watched closely on Friday and a stronger than expected figure would complicate the Fed’s task in setting interest rates while a weak reading would reinforce pressures for further tightened to be delayed. The Euro dipped to lows close to 1.1070 before rebounding slightly later and with a recovery above 1.1100 on Friday as the currency gained some net support from a fresh deterioration in risk conditions and a subdued dollar performance.
JPY  The dollar was unable to make any headway against the yen on Thursday with a gradual retreat towards the 113.50 area despite the stronger than expected jobless claims data. After moving significantly higher over the first three days of the week, there was a decline in US bond yields to the 1.76% level which curbed dollar support. US equity pieces also tended to edge lower which prevented any significant US buying. There was a more significant deterioration in risk conditions late in New York which triggered renewed gains for the Japanese currency, especially with oil prices also lower. Japanese data was weaker than expected with a 0.9% fall in the all-industries index and a decline in retail sales which will maintain pressure for further Bank of Japan action. The dollar dipped to lows below 113.00 in Asia and the Euro weakened to just below 125.50, the lowest reading since June 2013, before the yen edged away from highs as equity-market futures showed some recovery.
GBP  Sterling moved higher during the European session as the recent trend of very choppy trading continued. There was a mood of greater optimism surrounding the EU Summit with expectations that a deal would be reached during the talks. Sterling pushed to highs just short of the 1.4400 level against the dollar while the Euro retreated to lows towards 0.7700. Bank of England MPC member Cunliffe stated that he had no reason to change his stance on monetary policy. Fellow member Weale stated that he would be surprised if it took as long to raise interest rates as expected by the markets. The latest retail sales and government borrowing data will be watched closely on Friday for further evidence on underlying trends. After some progress was made during Thursday’s EU Summit session, talks will resume on Friday with expectations that a deal on revised UK terms will eventually be agreed. Agreement would be likely to provide a small net Sterling boost while an unexpected breakdown and another meeting in March would be liable to trigger significant losses.

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