The dollar ended the day lower on Thursday, despite a strong start, relatively positive data and a risk-off environment thanks to mounting political tensions in the Ukraine. Durable Goods Orders showed a contraction of -1.0% although this was better than the -1.7% expected. Durables Ex Transportation actually rose by 1.1% when it had been expected to fall by -0.3% . Jobless Claims data was mixed after Initial Claims showed a higher-than-expected rise to 348k but Continuing Claims fell to 2964k. The other main event was Janet Yellen’s testimony to the Senate about monetary policy. It did not impact much on the dollar, however, as she broadly reiterated her on-going commitment to tapering QE and continued to support monetary easing until the recovery was more sustained.
The euro rose on Thursday as a result of positive data, including German Unemployment, which stayed at 6.8% in February, as forecast, with a slightly higher-than-expected fall of -14k in the number of unemployed. German CPI in February, showed an annualised rise of 1.2% versus the 1.3% expected. Month-on-month CPI rose by a more muted 0.5% versus the 0.6% increase expected, although this was still a gain on the -0.6% previously. The marginal fall in inflation would have been expected to weaken the euro, however, it still represented a rise for the euro month-on-month. Another factor supporting the single currency was the better-than-expected rise in Sentiment data, with Euro-zone Economic Confidence, the Business Climate Indicator, Industrial Confidence and Services Confidence all showing above-expectations gains in February.
The pound rose versus the dollar but fell to the euro and the yen at the time of writing on Thursday. There was no data out so the currency but there was commentary from BOE’s Ian McCafferty, who indicated expectations of a rate rise in the second quarter to 2015 were reasonable. Some of his remarks indicated he might be concerned about any further strengthening in sterling’s exchange rate, as it might have a negative effect on exports and growth. This may have weighed on the pound, and alongside a general ambience of risk-off as a result of geopolitical tensions in the Ukraine could have explained sterling’s overall poor performance on the day.
The yen strengthened on Thursday after intensifying geopolitical tensions in the Ukraine led to an increase in safety-flows. In the southern Ukrainian region of Crimea armed men stormed the regional parliament and raised the Russian flag, claiming they wanted to protect themselves against the ‘illegal regime’ in Kiev. They were thought to be pro-Russian separatists who form part of majority of ethnic Russians living in Crimea. It is feared the incident could spark a major conflict if Russia sends troops in to back their claim. Other news included commentary from BOJ’s Sato arguing the BOJ could be ‘flexible’ about exiting QE. He said the crucial indicator was the “sustainability” of rising prices regardless of whether they reached the 2.0% target or not. On the data front, Foreigner’s Buying Bond rose by 136.3bn yen in the week ending February 21st, no doubt reflecting the increased risk aversion due to emerging market fears around that time.