this morning on divergent economic data. Weekly jobless claims
disappointed, pushing back above the 400K mark to register 410K.
Continuing claims also gained for the first time in more than a month,
highlighting the continued weakness in the labor market. However,
manufacturing in the Philadelphia region showed surprising signs of
life with the Philly Fed blowing out expectations with a reading of
35.9. Economists forecast a gain to 21 from 19.3 last month, but
demand for new equipment and increased exports helped push the measure
to the highest level in more than seven years. Consumer prices also
showed quickening growth in January, gaining 0.4% from the previous
month. The larger-than-expected gain brings the annualized inflation
rate to 1.6%, and 1.0% when food and energy are stripped out. Rising
inflation could prove supportive for the dollar in the longer term as
expectations grow that the Fed will begin to consider normalizing
rates. However, with the Fed's QE2 program still in effect through
June, and with tighter policy still far from imminent, higher prices
could weigh on consumer spending. Investors will however pay close
attention to Fed Chairman Bernanke's testimony on Capitol Hill this
morning, and any statements regarding future policy.
The *JPY* and *CHF* gained the most against the dollar overnight on
reports that Iranian warships were poised to pass through the Suez
Canal on their way to Syria. With continued unrest in the Middle East,
the US's primary ally in the region, Israel, saw Iran's decision
as a provocation with the regional balance of power in flux.
Demonstrations also turned deadly overnight in Bahrain, the Middle
Eastern base for a number of major international corporations, as
military police drove protestors from a public square. With the
geopolitical unrest showing signs of contagion, oil prices have jumped
and investors have sought the safety of currencies like the yen and
swiss franc as investors fear protests could impede oil production and
global trade.
The *EUR* has extended yesterday's gains, albeit within its recent
ranges against most major currencies.
Euro-bulls were encouraged by better-than-expected Eurozone consumer
confidence with the gauge gaining to -9.9, up from -11.2 in January,
and besting the expected gain to -11.0. While the measure does remain
negative, it appears that the economy is gathering strength and
European officials are close to reaching consensus on the expansion of
a permanent Eurozone "bailout fund." The common currency also
pushed higher as its positive correlation with crude oil prices
remains largely intact. However, gains have been capped by uncertainty
over the Middle East with investors opting for less risky trades this
morning.
The *GBP* gained this morning on hawkish BoE commentary. Policymaker,
Andrew Sentence, told reporters this morning that monetary policy
"would most likely need to be tightened faster, and by more than the
markets currently expect" to stave off inflation. He went onto say
that the country's currency is "the first line of defense for the
U.K. against global inflationary pressures." However, this is not
the first time Mr. Sentence has advocated for higher rates, and
markets have taken his comments in stride with the GBP locked within
its recent ranges.
*Commodity currencies* gained overnight on rising metals, energy and
food prices. Oil has jumped to a two-week high on renewed fears over
unrest in the Middle East. Gold has also continued to grind higher,
edging ever closer to its highs above the $1400 level seen late last
year. And food prices have begun to hit consumer wallets with the
shelf prices on bacon to coffee jumping by an average of 10%. The
*CAD* reached its strongest level since March 2008 on higher oil
prices as Iranian warships were rumored to be passing through the Suez
Canal. The loonie also outperformed other commodity-linked currencies
like the MXN and NOK, as a report showed that wholesale sales
increased for a fifth straight month in the US, Canada's primary
trading partner. The *AUD* pushed back above parity with the USD for
the first time in a week on hawkish comments from RBA policymaker,
Philip Lowe. He told reporters that global commodity prices will
likely remain "elevated for an extended period" and tighter
monetary policy in the region may be needed. However, gains in
higher-yielding currencies are being tempered by reduced demand for
riskier assets this morning as the situation worsens in the Middle
East.
Source: Fxstreet.com
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