The USD’s performance was mixed today as GBP soared across the board.  The North American session was highlighted by a softer than expected US PPI report (-0.6% m/m on expectations of -0.2%).  The EUR/USD closed at 1.3735 near low of the day from overnight highs of 1.3818.  GBP/USD surged to a session high of 1.5382 from an overnight low of 1.5209, before closing back to 1.5325 by the close.  USD/CAD continued its march towards parity, falling as low as 1.0071 from an overnight high of 1.0148, trading back to the 1.0100 level by the close.   USD/JPY continue to trade erratically around the 90.00 figure, while AUD/JPY closed at 83.41 reflecting healthy risk appetite.  Global bourses were up across the board, with the Dow closing up 0.4% on the day.  Despite the USD’s mixed performance, commodity prices were supported by risk appetite as NYMEX crude oil rose 1.2% to $82.68/bbl.

Headlines

EU:  German legislator Michael Meister, a member of Chancellor Angela Merkel’s Christian Democratic Union party, said Greece should turn to the IMF if aid is needed.  “We have to think about who has the instruments to push for Greece to restore its capital-markets access.”  EU:  European Commission President Jose Barroso said “I am not going to speculate now about dates” for possible European aid to Greece, but  “we have the instruments ready in case they are needed.”  Steps that Greece has taken recently are in line to meet its deficit reduction targets, Barroso said.  He added that “Greece is on track to achieve the ambitious target of 4% deficit reduction in 2010″ and “this is a remarkable achievement.”EU:  ECB Governing Council member Axel Weber said “I fully agree with those who have said that we should help Greece help itself.”  He added that “we need to have a monetary or fiscal expenditure programme way before excessive fiscal deficits emerge.”EU:  Greek Prime Minister George Papandreou said “we have left all options open” for obtaining financial aid.  “We would expect that the European Union and particularly the Eurozone can deal with this capability or this possibility which may never occur that we do actually need some form of intervention into the markets.”  Moreover, “Greece is “still borrowing at an unreasonably high interest rate… this does create an economic but also an economic problem.”

US:  Producer prices fell -0.6% m/m and rose 4.4% y/y in February from 1.4% m/m and 4.6% y/y in January, on consensus expectations of -0.2% m/m and 4.9% y/y.  Core PPI (ex food and energy) rose 0.1% m/m and 1.0% y/y in February from 0.3% m/m and 1.0% y/y in January, in line with consensus expectations.  On the finished goods side, food prices (18.6% of the index) rose 0.4% m/m in February driven by a 5.3% m/m rise in fresh vegetables and a 8.5% surge in eggs, while energy prices (21.0% of the index) fell -2.9% m/m driven by a -7.4% drop in gasoline prices and a -5.6% drop in home heating oil.  Core PPI was supported by a 2.1% surge in home furnishings, a 1.4% rise in sporting goods, and a 0.5% rise in passenger cars.

Brazil:  Recent polls have shown that support for the Workers’ Party presidential candidate Dilma Rousseff, President Lula Da Silva’s chosen successor,  has increased dramatically to 30% in March from 17% in December.  By contrast, opposition candidate Jose Serra’s support has fallen to 35% from 38%.  The margin of error suggest that the two candidates are running a dead heat a little more than six months ahead of the election. Serra, who hasn’t officially announced his candidacy is governor of Brazil’s wealthiest and most populous state, and belongs to the opposition Social Democracy Party.

Comments

Dow 10,733.67, +0.4%; NYMEX Crude Oil $82.68, +1.2%The USD’s performance was mixed today as GBP soared across the board.  The North American session was highlighted by a softer than expected US PPI report (-0.6% m/m on expectations of -0.2%).  The EUR/USD closed at 1.3735 near low of the day from overnight highs of 1.3818.  GBP/USD surged to a session high of 1.5382 from an overnight low of 1.5209, before closing back to 1.5325 by the close.  USD/CAD continued its march towards parity, falling as low as 1.0071 from an overnight high of 1.0148, trading back to the 1.0100 level by the close.   USD/JPY continue to trade erratically around the 90.00 figure, while AUD/JPY closed at 83.41 reflecting healthy risk appetite.  Global bourses were up across the board, with the Dow closing up 0.4% on the day.  Despite the USD’s mixed performance, commodity prices were supported by risk appetite as NYMEX crude oil rose 1.2% to $82.68/bbl.The reaction to the softer than expected PPI report was muted, as the data supported yesterday’s FOMC statement that underscored no need to raise the fed funds target in the near-term.  Technical factors appear to be dominating fundamental factors this morning, with players taking profit on short USD positions.  The EUR/USD fell as low as 1.3737 from an overnight and monthly high of 1.3818, recovering to 1.3765 by 10am.  Separately, GBP/USD surged as high as 1.5382 by 6:15am from an overnight low of 1.5209, trading back to 1.5325 by 10am.  USD/JPY returned to range bound conditions around the 90.50 level after a failed test of 90.00 overnight.  USD/CAD continued to grind lower, hitting the lowest level since July 2008 when the speculative surge in crude oil reached a record high of $146/bbl.  Finance Minister Jim Flaherty said yesterday that “Canada’s relatively strong fiscal position is assisting the rise in the Canadian dollar,” as is weakness in the greenback.  While the reason for CAD strength may be more closely tied to BOC expectations than fiscal rectitude, it appears that policymakers are beginning to express less concern over currency strength.  Parity in USD/CAD may be the price to pay for responsible policy on behalf of the BOC and Canadian government.  Back in the US, non-farm payrolls are expected to break into positive territory this month and show continued improvement throughout the spring.  If so, the unemployment rate is expected to continue falling.  While this may be a better environment for the Fed to begin normalizing rates, there is no indication yet that the majority on the FOMC are ready to act just yet given benign inflationary conditions.

Key Economic Data Releases

UK:  M4 Money Supply (Feb P), consensus 0.7% m/m, 4.3% y/y ; previous 0.4% m/m, 4.9% y/y  (0930 GMT)
EC:  Eurozone Trade Balance (Jan), consensus -4.0B EUR; previous 4.4B EUR  (1000 GMT)
US:  CPI (Feb), consensus 0.1% m/m, 2.3% y/y; previous 0.2% m/m, 2.6% y/y  (1330 GMT)
US:  Core PPI (Feb), consensus 0.1% m/m, 1.4% y/y; previous -0.1% m/m, 1.6% y/y  (1230 GMT)
US:  Initial Jobless Claims (Mar 13), consensus 455K; previous 462K  (1230  GMT)
US:  Continuing Claims (Mar 6), consensus 4,522K; previous 4,558K  (1230  GMT)
US  Current Account (Q4), consensus -119B USD; previous -108.0B USD  (1230 GMT)
US:  Philly Fed (Mar), consensus 18.0; previous 17.6  (1500 GMT)
US:  Leading Indicators (Feb), consensus 0.1% m/m;  previous 0.3% m/m  (1500 GMT)
US:  Fed’s Duke Speaks in Washington  (1130 GMT)
EC:  France’s Lagarde Speaks in Brussels  (1130 GMT)
US:  Fed’s Hoenig, Lacker, Pianalto Speak in Washington  (1300 GMT)
US:  Fed’s Greenlee Testifies to US House  (1500 GMT)
UK:  BOE’s Sentance Speaks in London  (1645 GMT)
SW:  SNB’s Danthine  Speaks in Zurich  (1700 GMT)

>Article by Michael Woolfolk, Senior Currency Strategist at Bank of New York Mellon

(michael.woolfolk@bnymellon.com)

Original : https://gm.bankofny.com/Research/MorningUpdate/Article.aspx?Type=1&ContentManagerID=24259