[B]Market Review[/B] - 18/02/2014 [I]22:05GMT[/I]
[B]Euro strengthens broadly and hits a fresh 1-1/2 month high against the dollar[/B]
The single currency rose broadly on Tuesday and rose to a fresh 1-1/2 month peak at 1.3770 against the dollar due to active cross-buying of euro, although a report showed that German economic sentiment deteriorated in January due to concerns that the economic recovery in the U.S. could lose momentum.
The ZEW Centre for Economic Research said that its index of German economic sentiment came in at 55.7 in February, down from 61.7 in January. Meanwhile, a separate report showed the current conditions index improved to 2-1/2 year highs of 50.0 this month from 41.2 in January.
During the day, despite euro’s sideways trading below Monday’s high of 1.3724 in Asia, renewed weakness in greenback lifted price to 1.3734 near European midday and the single currency later rallied to fresh 1-1/2 month peak at 1.3770 on active buying in euro crosses in New York morning before easing.
Versus the Japanese yen, although dollar staged a brief drop from 102.17 to 101.77 in Asian morning on Tuesday, price swiftly rallied to 102.74 after the Bank of Japan kept rates on hold, but extended a bank lending scheme in an attempt to boost the effectiveness of its monetary stimulus program. Later, profit-taking pressured price to 102.31 in European morning and then 102.24 in New York session.
Bank of Japan kept its monetary policy steady by unanimous vote on Tuesday and stated ‘board turns down by 8-1 vote a proposal by Kiuchi to make 2% inflation target a medium-term goal; economic assessment unchanged, economy continues to recover moderately; improvement in job market and incomes have continued; exports have generally been picking up; domestic and external demand is increasing moderately; can see front loading in demand ahead of sales tax hike; inflation expectations appear to be rising on the whole.’ The central bank is however likely to scale up its low-interest loan program for commercial banks that are investing in growth-oriented sectors. It may also extend the deadline for applying for the loans by one or two years.
Cable traded in a choppy fashion on Tuesday, despite a briefly rise to 1.6741 ahead of European open, release of lower-than-expected U.K. consumer price index reinforced the view that the Bank of England is unlikely to raise interest rates any time soon and triggered broad-based selling in sterling. Price extended fall from Monday’s 4-year peak at 1.6823 to 1.6655 in European morning but climbed back to 1.6708 and then 1.6728 in New York morning.
Data showed that consumer price inflation in the U.K. fell back below the Bank of England’s 2% target for the first time since November 2009 in January. U.K. consumer prices fell 0.6% in January from a month earlier, while core CPI, which excludes food, energy, alcohol, and tobacco costs rose 1.6% in January, slowing from 1.7% in December.
On the data front, U.S. Fed’s Empire state index came in at 4.48, much lower than economists’ forecast of 8.5.
In other news, RBA released its February minutes and said ’ period of stability in interest rates likely most prudent course; RBA board saw further signs policy stimulus was having its intended effects; RBA board felt Q4 inflation figures likely contained “some noise”, as well as signal; inflation puzzle could also reflect lower A$, lag in impact from slower wages; lower A$, if sustained, would be expansionary for economy; leading indicators of employment had stabilized, but pointed to only moderate growth; board recognized that labour market conditions tended to lag economic growth; recent data more positive on consumption, home building, business conditions and exports; liaison suggested retail sales through Christmas were reasonably good; possible household consumption could outpace income thanks to house, equity prices; reasonable prospects that growth in major trading partners would pick up in 2014; board noted conditions in some emerging markets had become more unsettled.’
[B]Data to be released on Wednesday: [/B]
Australia conference board leading index, Japan leading index, UK BoE minutes, claimant count, ILO unemployment rate, U.S. housing starts, building permits and PPI.