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Dollar Aims Higher on Moody’s Downgrades, Pound Eyes Inflation Data

By , Currency Strategist
14 February 2012 07:54 GMT

Talking Points

  • Dollar Soars on Haven Demand as Moody’s Threatens France, UK Credit Ratings
  • Yen Declines After Bank of Japan Expands Asset Purchases, Sets Inflation Target
  • Euro Likely to Look Past ZEW Improvement, All Eyes on Bond Auction Outcomes
  • British Pound Vulnerable as Inflation Data Bolsters the Case for QE Expansion

The US Dollar (ticker: USDollar) pushed broadly higher in overnight trade as stocks declined, driving safe-haven demand for the benchmark currency. The MSCI Asia Pacific regional benchequities index fell 0.6 percent after Moody’s cut the credit ratings of six European Union countries including Italy, Portugal and Spain. France, Austria and the UK were assigned a “negative” outlook, meaning there is at least a 40 percent chance that the three countries would lose their AAA ratings over the coming 18 months. The Japanese Yen underperformed after the Bank of Japan expanded its asset its asset-purchase fund to ¥30 trillion and set an inflation target of 1 percent, signaling additional easing to come ahead.

Looking ahead, S&P 500 stock index futures are trading firmly lower ahead of the European opening bell, hinting continued risk aversion stands to continue driving the greenback higher at the expense of stocks-linked currencies. Spain, Italy and Greece will all hold bond auctions, with the outcomes likely to be treated as a gauge of perceived solvency risk in the region following the Moody’s downgrades.

On the economic data front, UK Consumer Price Index figures are expected to see the annual inflation rate drop to 3.6 percent in January, marking a 14-month low. As we discussed in our weekly forecast, the outcome stands to reinforce the case for an expansion of quantitative easing announced by the Bank of England last week and may weigh on the British Pound. Meanwhile, the German ZEW survey of investor confidence is forecast to see sentiment improve for the second month. The outcome may not offer much support to the Euro however if debt crisis fears continue to dominate the spotlight.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Food Prices (MoM)

0.0%

-

0.2%

23:00

NZD

QV House Prices (YoY)

2.7%

-

2.4%

0:01

GBP

RICS House Price Balance (JAN)

-16%

-17%

-16%

0:30

AUD

NAB Business Conditions (JAN)

2

-

0 (R-)

0:30

AUD

NAB Business Confidence (JAN)

4

-

3

3:00

NZD

REINZ House Price Index (MoM) (JAN)

-1.4%

-

-0.1%

3:00

NZD

REINZ House Sales (YoY) (JAN)

25.2%

-

20.9%

3:43

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

4:30

JPY

Industrial Production (MoM) (DEC F)

3.8%

-

4.0%

4:30

JPY

Industrial Production (YoY) (DEC F)

-4.3%

-

-4.1%

4:30

JPY

Capacity Utilization (MoM) (DEC F)

3.1%

-

-2.9%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

French Non-Farm Payrolls (QoQ) (4Q P)

-0.2%

0.0%

Low

7:45

EUR

French Wages (QoQ) (4Q P)

-

0.3%

Low

9:30

GBP

DCLG UK House Prices (YoY) (DEC)

-

-0.3%

Low

9:30

GBP

Consumer Price Index (MoM) (JAN)

-0.5%

0.4%

Medium

9:30

GBP

Consumer Price Index (YoY) (JAN)

3.6%

4.2%

High

9:30

GBP

Core CPI (YoY) (JAN)

2.6%

3.0%

Medium

9:30

GBP

Retail Price Index (JAN)

238.4

239.4

Low

9:30

GBP

Retail Price Index (MoM) (JAN)

-0.4%

0.4%

Low

9:30

GBP

Retail Price Index (YoY) (JAN)

4.1%

4.8%

Low

9:30

GBP

RPI Ex Mort Int Payments (YoY) (JAN)

4.2%

5.0%

Low

9:30

EUR

Spain to Sell 364-553 Day Bills

-

-

Medium

10:00

EUR

Italy to Sell 2014-2017 Bonds

-

-

Medium

10:00

EUR

Greece to Sell 91-day Bills

-

-

Low

10:00

EUR

Euro Zone Industrial Production (YoY) (DEC)

-1.2%

0.1%

Medium

10:00

EUR

Euro Zone Industrial Production (MoM) (DEC)

-1.2%

0.0%

Medium

10:00

EUR

German ZEW Survey (Current Situation) (FEB)

30.5

28.4

High

10:00

EUR

German ZEW Survey (Eco Sentiment) (FEB)

-15

-21.6

High

10:00

EUR

Euro Zone ZEW Survey (Eco Sentiment) (FEB)

-

-32.5

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3020

1.3252

GBPUSD

1.5646

1.5810

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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14 February 2012 07:54 GMT