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Dollar falls on Yellen jobs concern


The dollar weakened on Monday after Fed Chair Janet Yellen gave a speech in which she supported a continued loose monetary policy regime. Central to her argument was that the Fed needed to continue with its efforts to create ‘full’ employment. In a highly original speech she cited the stories of three workers who had lost their jobs in the financial crisis and had since either struggled to regain any kind of employment, or struggled to regain full-employment, or to find jobs which paid what they had previously earned. These examples backed up her conviction that the Fed still needed to do more to help the economy. Her call for the monetary policy environment to remain loose for some time contrasted with her more hawkish statement after the last FOMC, which had indicated the Fed might raise interest rates sooner than previously thought. On the data front it was a light day, with Chicago PMI in March showing a steep fall to 55.9 from 59.5 expected and Dallas Fed Manufacturing rising to 4.9 – well above the 3.0 expected.


The euro rose initially but then started falling at the time of writing. The single currency appreciated early on despite the release of data from Eurostat’s “Flash” estimate – or initial estimate – which showed inflation in the region falling to 0.5% in March for 0.7% previously, undershooting the 0.6% expected. The fact the euro strengthened was put down to traders remaining confident that the ECB would not change policies at the Thursday rate meeting despite the inflation dip. The recent doveish commentary from ECB officials, including Bundesbank’s Weidmann, who actually raised the possibility of the ECB practising QE, was interpreted as verbal intervention to cap the euro’s gains rather than scene setting for a rate cut or the announcement of non-standard measures. Other data on Monday, showed German Retail Sales rising to 1.3% m/m in February vs -0.5% expected, and 2.0% y/y versus expectations of 0.8%. French GDP came out at 0.8% y/y in line with expectations, and Core Euro-zone CPI in March moderated to 0.8% as forecast.


The pound strengthened on Monday after the BOE’s tighter policy outlook compared favourably to other major central banks, supporting sterling. A doveish speech by the new Fed Chair Janet Yellen, in which she continued to argue for prolonged accommodation, and lower-than-expected inflation data from the Euro-zone which indicated an extended easy monetary policy climate in Europe, showed the BOE was further along its easing cycle compared to other central banks. Most of the data released was for lending: Mortgage Approvals (Feb) fell to 70.3k from 76.8k and was below expectations, Net Consumer Credit (Feb) came out at 0.6bn when it had been expected to come out at 0.7bn. ‘Net Lending secured on Dwellings’ (Feb), however, rose to 1.7bn versus 1.5bn expected.
Money Supply, meanwhile, rose surprisingly, by 3.0% in February, in the last 3 months, from 1.8% previously on an annualised basis.


The yen fell overall on Monday after a combination of poor Manufacturing and Industrial Production data brought into question the efficacy of Abenomics and in anticipation of the imminent Sales Tax hike which will come into effect on Tuesday. The yen was further hit by easing Ukraine tensions, following a telephone conversation between President Vladimir Putin and Angela Merkel in which Putin said he was moving men back from his country’s border with Ukraine. Diplomatic talks between the U.S’s John Kerry and his Russian opposite Sergie Lavrov may also have helped diffuse the situation. Industrial Production in February undershot expectations, coming out at -2.3% from 0.3% m/m and only rising by 6.9% y/y when a 9.9% increase had been expected. Manufacturing PMI in March fell to 53.9 from 55.5. Housing Starts only rose by 1.0% in February versus 4.8% expected and, an astounding, 12.8% previously.

Tuesday, 01 Apr, 2014 / 8:26

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