[B]Market Review[/B] - 11/03/2014 [I]21:12GMT [/I]
[B]
U.S. dollar retreats versus Japanese yen on renewed risk aversion[/B]
U.S. dollar remained little changed against the euro and British pound on Tuesday and moved sideways versus the yen in light trade after the Bank of Japan kept monetary policy on hold and gave no sign that further easing is on the way. However, it later retreated against the Japanese yen on renewed risk aversion due to the weakness in U.S. equities. U.S. Dow Jones index closed down by 67 points to 16351.
The Bank of Japan maintained its pledge to expand the monetary base at a pace of 60 trillion yen to 70 trillion yen per year. The central bank also kept the view that economic growth and inflation are proceeding in line with forecasts.
BoJ’s Governor Haruhiko Kuroda spoke in press conference after rate decision and said ‘sales tax hike unlikely to cause 1997-style recession; economy near full employment, pushing up wages, prices; no change in my view on price outlook; capex to continue to rise moderately as trend; positive economic cycle intact due to firm domestic demand; Japan economy to grow above potential rate as trend in fiscal year 2014 and 2015; core CPI likely to hit 2% around early 2015; Japan economy on steady track towards 2% price goal.’
During the day, although euro retreated after meeting renewed selling at 1.3879 in Australia and dropped to a session low of 1.3834 in European morning due to comments from European Central Bank Vice President Vitor Constancio who said that markets had missed some parts of its message on forward guidance last week. Short-covering lifted price from there and price later rebounded to 1.3875 in New York morning before easing.
ECB’s Vice President Vitor Constancio said ‘policy stance does not mean we are on hold in terms policy regardless of development of situation; forward guidance was made more precise on March 6 in relation to slack in economy; we have tools on the table, including rate cuts or QE; we are on hold in terms of policy regardless of the developments of the situation.’
Versus the Japanese yen, dollar moved in a narrow range on Tuesday due to thin market condition, despite 1-tick rise above Monday’s high of 103.41 to 103.42 in Asia, price traded sideways in Europe and then dropped to 103.03 in New York morning. Meanwhile, euro and sterling weakened from 143.44 to 142.84 and from 172.11 to 171.37 before stabilising as market sentiment remained fragile.
Cable retreated after a brief jump to 1.6653 shortly after European open and dropped below Monday’s low at 1.6622 after data showed that U.K. manufacturing output rose more than expected in January, but bad weather hampered the broader measure of industrial output. Later, price fell to a session low of 1.6596 after Bank of England Governor Mark Carney indicated that there is leeway for the bank to leave rates on hold for longer before short-covering lifted price to 1.6647 in New York morning.
According to the Office for National Statistics, U.K. manufacturing production rose 0.4% in January, above expectations for a 0.3% gain, while December’s figure was revised up to a 0.4% increase from a previously reported gain of 0.3%. On a year-over-year basis, manufacturing production rose 3.3%, up from 1.4% in December. A separate report showed U.K. industrial output rose 0.1% in January, slowing sharply after a 0.5% increase in December and was up 2.9% from a year earlier.
Bank of England Governor Mark Carney said Tuesday during testimony on the inflation outlook to parliament’s Treasury Select Committee that there was a range of views among the bank’s monetary policy committee members on the amount of spare capacity in the U.K. economy. He also said it was not unreasonable to think that interest rates may rise to 2.0% to 2.5% over the next three years. Carney also reiterated that when rate increases do come they will be gradual.
[B]Data to be released on Wednesday: [/B]
Australia consumer confidence, home loans, Japan tertiary industry index, BSI large all industry, BSI large manufacturing, domestic CGPI, consumer confidence, EU industrial production.