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Dollar mixed on tepid data; pound rises after CPI


At the time of writing the dollar had fallen to the pound and was trading slightly lower versus the euro on Tuesday – against the yen it was unchanged. Overall data was mixed, with a higher-than-expected rise in Consumer Confidence, but a lower-than-expected result for the House Price Index. The former rose in March to 82.3 from 78.5 expected whilst the latter came out at 0.5% in January when a 0.6% rise had been forecast. New Home Sales also fell disappointingly, dropping by -3.3% from the 3.2% rise in January, although this was not as deep a fall as the -4.9% expected. House Price data from S&P/Case-Shiller was mixed , with the 20-city index, which aggregates the price changes in single-family dwellings in 20 major metropolitan areas showing a m/m rise in January, of 0.85% but y/y undershooting expectations, coming out at 13.24% versus 13.34% expected, from 13.38% previously. Commentary from Atlanta Fed’s Lockhart suggested he expected the Fed to wait at least 6-months till after the end of QE until raising base lending rates.


The euro fell on Tuesday after doveish commentary from European Central Bank officials stoked speculation the ECB might increase stimulus to raise inflation. Governing Council member Jozef Makuch, head of the Slovak National Bank, said he saw increased risks of deflation and that a “number of ECB members” were ready to take action if needed. He said he saw “the euro weakening by the end of the year” – a sign the central bank might be getting ready for a liquidity push. In a separate interview, the more hard-line Bundesbank chief Jens Weidmen softened his stance, saying that he was open to the possibility of the ECB purchasing euro-zone government bonds, when previously he had been against the idea. The commentary followed recent doveish comments from the vice-president of the ECB Victor Constancio who also raised the possibility of using non-standard measures such as QE or LTROs to help combat lack of growth. The main data out on Tuesday was the IFO survey which was mixed, showing a rise in the Current Assessment to 115.2, but falls in both Expectations and Business Climate.


The pound rose on Tuesday after the release of CPI data showed increased inflation in February. Core CPI rose a basis point above expectations to 1.7% when it had been expected to remain unchanged at 1.6%. The small but significant change made it more likely the BOE would accelerate monetary policy tightening to dampen inflation. Headline inflation meanwhile dropped to 1.7% as expected, and rose by 0.5% m/m. The Retail Price Index rose by 2.7% y/y versus 2.6% expected. Other data showed an overall fall in Producer Prices, on a non-seasonally-adjusted basis. Further news showed a rise in House Prices to 6.8% y/y in January. Not all data was positive, however, as data from the British Banking Association showed a fall in the number of mortgages being granted to 47550 from 49341 previously, in February. The Consortium of British Industry release figures which showed a slump in reported sales to 13 vs 28 expected from 32 previously.


The yen ended the day little changed against most counterparts on Tuesday. It continued in its sideways range versus the dollar, strengthened but then gave it all back versus the euro, and fell against the pound, which strengthened as a result of better-than-expected data. The only release for the yen was Small Business Confidence in March, which rose to 53.5 from just over 50. Recent commentary from BOJ officials was optimistic in tone, dismissing the expected negative impact of the sales tax hike scheduled for April. The deputy governor Kikuo Iwata said, on Monday that foreign investors were still sceptical of the impact of the tax rises, after figures showed foreigners selling 1.1 trillion yen worth of stocks in the week ending March 14 – a massive rise from the previous period. The performance of the Nikkei has reflected these growing fears, falling 11% so far in 2014 compared to the 53% rise in 2013. Over 35% of economists interviewed by Bloomberg expect the BOJ to increase stimulus as early as next month to offset the tax hike. The bank is already buying over 7tr yen worth of securities a month in its current QE programme so an increase would definitely choke the yen and almost certainly see a rise above the 100 yen mark versus the dollar again.

Wednesday, 26 Mar, 2014 / 11:26

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