Japanese Yen: Triggers carry liquidation off UK-Iran jitters
Euro: Soft CPI keeps the currency pegged
British Pound: Weaker Nationwide figures and wider CA pressure the unit
US Dollar: Durable Goods and Bernanke awaited
Yen Gets a Boost From UK-Iran Jitters Pound Hurt By Lower GDP
A very volatile session in Asia tonight despite the absence of any economic news as geo-political jitters dictated FX flows at the start of the day. Yesterdays rumors that Iran fired on a US navy vessel created a flight to safety move amongst speculative accounts. Although the rumor was quickly denied by US military personnel, selling in Japan continued into the afternoon as USDJPY tumbled to 117.10 as stops and carry trade liquidation pushed the pair lower.
In Europe order flow was far more subdued as mixed data from the Euro-zone kept the EURUSD pegged in a tight 1.3345-25 range. Despite double digit growth in EZ Money supply figures German CPI numbers were well contained printing at 1.9% - below the ECB self imposed barrier of 2.0%. Rhetoric from ECB officials continued to be hawkish with Mr. Gonzalez-Paramo stating that inflation risks are clearly to the upside, but the market has heard all those comments before and his words had no impact on trade.
Across the pond, UK data was decidedly shaky with Q4 GDP revised lower to 0.7% from 0.8% expected while Nationwide Housing survey showed a slowdown in price appreciation that echoed Governor King comments yesterday. Worse, UK Current account deficit widened materially from -9.0 Billion forecast to -12.7 Billion. The news once again brought into focus UK deteriorating Balance Sheet position as the country continues to increase its debt load. Nevertheless, the pound saw only temporary weakness recovering to its pre-release levels within an hour. Traders continue to favor another rate hike from the BoE by May and therefore view every dip in the pair as a buying opportunity. We however remain quite skeptical about the extent of BoEs hawkishness. Yesterdays tempered tone by Governor King and other MPC officials may be the first hint that the UK central bank will remain on the sidelines for longer that most market participants think.
Today attention turns to US Durable Goods orders and Dr. Bernankes testimony. The Fed Chairman faces a tall task of maintaining a hawkish posture in the face of slowing economic demand. Yesterdays geo-political turmoil only added to Dr. Bernankes woes as it pushed the price of oil above $64/bbl creating further price shocks throughout the system. Faced with the possibility of $3/gallon gasoline, stagnant wage growth and declining housing values, it is difficult to see how the US consumer will be able to keep the US economy afloat in the coming months. Thus despite his emphasis on inflation, Dr. Bernanke and the rest of the FOMC remain constrained in their ability to tighten monetary policy under current conditions.
