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

2012-02-14 07:54:00 Ilya Spivak, Head Strategist, APAC

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