Euro, British Pound Weighed by Economic Uncertainties – U.S. Dollar Rallies Across the Board

Talking Points
•    Japanese Yen: Halts Six-Day Rally Against Greenback
•    Pound: Mortgage Approvals Hit 8-Month Low in January
•    Euro: Unemployment Rate Holds Steady at 9.9%
•    U.S. Dollar: Personal Spending, ISM Manufacturing on Tap

Euro, British Pound Weighed by Economic Uncertainties – U.S. Dollar Rallies Across the Board

The Euro failed to break above the 20-Day SMA (1.3666) during the overnight trade as policy makers held a cautious outlook for the region, and the single-currency is likely to maintain the downward trending channel carried over from earlier this year as the European Central Bank is widely expected to hold the benchmark interest rate at the record-low of 1.00% this Thursday. Greek Finance Minister George Papaconstantinou met with European Union Economic and Monetary Affairs Commissioner Olli Rehn in Athens to discuss the present situation of the nation’s public finances, and pledged to do “whatever is necessary, including adopting additional measures” as risks materialize.

At the same time, Mr. Rehn urged the Greek government to increase its efforts over the coming days and get the “economy back on a sustainable path,” and went onto say that “additional consolidation measures are necessary” as the risks “related to macroeconomic and market developments are materializing.” Meanwhile, the final manufacturing PMI reading for the Euro-Zone showed economic activity expanded at a faster pace in February, with the index rising to 54.2 from an initial forecast of 54.1, while a separate report showed import prices in Germany jumped 1.7% in January to top expectations for a 0.7% rise. Moreover, the annual rate of unemployment for the euro-region unexpectedly held flat a 9.9% for the second consecutive month in January however, conditions are likely to remain subdued over the coming months as the European Central Bank expects the labor market to deteriorate further this year.

The British Pound extended the decline from the previous week and slipped to a fresh yearly low of 1.4981 against the greenback, and the currency may face increased selling pressures going into the North American trade as the economic docket continues to reinforce a weakened outlook for future growth. Mortgage approvals in the U.K. slipped to an eight-month low of 48.2K in January from a revised 58.2K in the previous month, with net mortgage lending weakening to its lowest level since 2000, while consumer credit increased GBP 0.5B during the same after rising GBP 0.3B in January. Meanwhile, the manufacturing PMI held steady at 56.6 for the second time in February, which was largely in-line with expectations, and the Bank of England is likely to maintain a dovish outlook for future policy this week as the central bank continues to see a risk for a protracted recovery. 

The greenback regained its footing during the European session, with the USD/JPY advancing to a high of 89.38, and the slew of data scheduled for the U.S. trade is likely to spark increased volatility in the currency market as investors weigh the outlook for future growth. Personal spending in the world’s largest economy is forecasted to grow 0.4% in January after tipping 0.2% higher in the previous month, while personal incomes are expected to hold steady at 0.4% for the second month as a result of the ongoing weakness in the private sector. Moreover, manufacturing is expected to expand at a slower pace in February as economists project the ISM index to weaken to 58.0 in February from 58.4 in the month prior, while construction spending is expected to drop 0.6% in January after slipping 1.2% during the final month of 2009. Nevertheless, Canada’s 4Q GDP is anticipated to expand at an annualized pace of 4.2% after growing 0.4% during the previous three-month period, and the data could produce a sharp move in the exchange rate as the Bank of Canada is scheduled to announce its interest rate decision on Tuesday at 14:00 GMT.


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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com