The US dollar advanced against its forex rivals when risk aversion returned to the financial markets, with the euro and pound chalking up the largest losses. Data from the US economy was mixed, with the HPI showing a larger than expected 0.6% increase versus the projected 0.4% gain and the Richmond manufacturing index tumbling from 0 to -5. Fed official Lockhart emphasized that he’s counting on a rate hike for the year, reviving demand for the US dollar. US crude oil inventories and another speech by Lockhart are lined up today.
The euro was in for a heavy beating yesterday, despite the lack of top-tier data from the euro zone. Traders were likely pricing in expectations for today’s events, namely the PMI releases and a speech by ECB Governor Draghi. He is expected to repeat the central bank’s dovish bias while citing the recent downgrades in inflation figures. The PMI readings are generally expected to show weakness, underscoring the ECB’s willingness to ease if necessary.
The pound suffered a selloff when data from the UK came in weaker than expected. The public sector net borrowing report showed a larger deficit of 11.3 billion GBP instead of the projected 8.7 billion GBP deficit while the previous reading suffered a downgrade to show a smaller surplus. The CBI industrial order expectations index fell from -1 to -7 to show a decline in order volumes. There are no reports due from the UK today but MPC member Broadbent has a testimony due.
The franc took its cue from the euro and sold off against most of its forex rivals, as traders predicted that any easing from the ECB would likely be followed by SNB intervention. The Swiss trade balance was actually better than expected at a surplus of 2.87 billion CHF versus the projected 2.78 billion CHF reading, but this was a smaller surplus compared to the earlier month.
The yen took advantage of the run in risk aversion to advance against the higher-yielding currencies but it was no match to the US dollar. There were no reports released from Japan yesterday since traders are still on a holiday until today.
Commodity Currencies (AUD, NZD, CAD)
The comdolls weakened to the lower-yielding dollar and yen in recent trading sessions when risk aversion popped in. Earlier today, Australia reported a 0.3% increase in its CB leading index, recovering from the previous 0.3% drop. The Chinese Caixin PMI is due today and another fall could spur selling for the comdolls and equities. Canadian retail sales figures are up for release later on, with the headline figure projected to show a 0.5% increase and the core figure expected to show a 0.4% gain.
By Kate Curtis from Trader’s Way