Euro Rallies as Growth Prospects Improve, British Pound Extends Rebound

Talking Points
•    Japanese Yen: Maintains Range Against Greenback
•    Pound: BoE Sees Rise in Private Spending
•    Euro: Industrial Outputs Expand the Most in 20-Years
•    U.S. Dollar: Retail Sales, U. of Michigan Confidence on Tap

Euro Rallies as Growth Prospects Improve, British Pound Extends Rebound

Industrial outputs in the euro region surged 1.7% in January to mark the biggest expansion since August 1989, while the annualized rate increased for the first time since April as production jumped 1.4% from the previous year. However, wholesale prices in Germany tipped 0.1% in February, which fell short of expectations for a 0.3%, while the index advanced 2.1% from last year, and subdued price pressures could lead the European Central Bank to maintain a neutral policy stance going into the second-half of the year as they maintain their one and only mandate to ensure price stability. Nevertheless, Bundesbank President Axel Weber argued the Governing Council needs to conclude its emergency measures as soon as the recovery takes hold during a panel discussion in Germany, and the ECB may continue to normalize policy over the coming months as growth prospects improve.

The British Pound rallied for the second-day to reach a high of 1.5171, but the exchange rate is likely to maintain a narrow range going into the following week as the Bank of England is scheduled to release its policy minutes on Wednesday at 10:30 GMT. Meanwhile, BoE Chief Economist Spencer Dale held an improved outlook for the U.K. and said that there are “some tentative signs that nominal spending in our economy is starting to accelerate” as the expansion in monetary and fiscal policy continues to support economic activity. In addition, Mr. Dale argued that “much of the impact of our asset purchases is still to come through,” and went onto say that “the most difficult decision will be to decide the timing of the withdrawal” of the emergency measures.

The greenback weakened across the board, with the USD/JPY slipping to a low of 90.16 during the European trade, and the reserve currency could face increased selling pressures going into the North American session as the economic docket is expected to reinforce a dour outlook for the world’s largest economy. Retail spending in the U.S. is anticipated to contract 0.2% in February after rising 0.5% in the previous month, and the data could stoke a weakened outlook for future growth as private consumption accounts for more than two-thirds of the economy. Nevertheless, the U. of Michigan confidence survey is projected to increase to 74.0 in March following the unexpected drop during the previous month, while business inventories are forecasted to rise 0.1% in January.


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