NEWS / Foreign Exchange

Dollar Loses Despite Higher Consumer Prices

US SESSION MAJOR EVENTS

??? Dollar Loses Despite Higher Consumer Prices
??? Dearth Of Economic Data Turns Traders To Key Reports Next Week
??? Leading Indexes Mixed On Japanese Economy

Dollar

The dollar was lower on the day despite economic fundamentals that would??™ve supported the US currency otherwise.  Released in the morning, US consumer prices rose better than expected in the month and year on year comparison.  For the month of February, the headline number increased to 2.4 percent after the monthly figure rose by 0.4 percent.  However, the core figure remained weaker, falling in-line with consensus estimates as underlying expectations were looking for an larger increase on higher crude oil prices.  As a result, traders took the US currency lower against the majors as the Dow Jones Industrial Average closed lower for the session, down by 50 points.  Additionally pessimistic was the University of Michigan??™s consumer sentiment survey.  Expected to ring in at 89, the preliminary assessment was lower for the month of March, printing an 88.8.  The lower figure declined through the previous 91.3 and lent a bearish shading on the US currency.  Unsurprisingly, the lower figure was attributed to recent stock market declines and higher gasoline prices.  Nonetheless, market players kept the reading in context, as a preliminary post, with most looking towards further evaluation of the economy.  The reports will, however, be taken into consideration when Fed policy officials meet next week to announce a decision on benchmark rates.  Although markets are expecting a stay at 5.25 percent, the subsequent rhetoric should point players in the right direction.  Obvious attention will be placed on any further mention of subprime lending woes and their future spillover effects into the economy.  Should the latter emerge, dollar bears will sure be on the sidelines ready to pounce.

Euro

The euro gained momentum in the overnight and New York session as the currency pair took out major technical resistance in London.  Purporting the advance seemed to be momentum players and stop triggers n thin volume ahead of US releases in the New York morning.  Incidentally, the price action countered rather tepid economic data, including the leading indicators index and a rather lackluster retail sales figure in Switzerland.  While Eurozone regional reports were mixed, traders took note of the inline OECD leading indicators report in boosting the probability of continued hawkishness by the European Central Bank.  In January, the report showed a 109.3 reading.  Subsequently, Swiss adjusted real retail sales figures were less than expected, rising by only 5.1 percent in January.  Dropping below the 9.2 percent figure in December, the report according to the statistics office showed supported demand for clothing and food items in the month.  The report feeds into optimistic industrial production figures expected early next week for the fourth quarter.  Should expectations of 3.5 percent be met in the quarter, the Franc may very well maintain its bid tone on Monday.

British Pound

The sterling was higher n the overnight boosted by momentum players as traders contended with a dearth, rather absence, of economic data.  However, next week??™s schedule will add some volatility as three main reports are expected by pound speculators.  The first will be the consumer price index for February.  Although paring back from the alarming 2.9 percent rise in the previous month, the report is expected to continue to show underlying price increases, to the tune of 2.7 percent on the year on year.  Such a print will help the Bank of England in justifying another round of rate hikes, with some even pitting it as soon as May.  Subsequently, the inflationary assessment will be released ahead of the Bank of England meeting minutes next week.  Although in hindsight, the meeting minutes will be used to confirm the bias, and support the move for another rate hike in the near term.  Last but not least, traders will be analyzing the results of February retail sales data.  Promising, domestic spending is expected to turn around from the -1.8 % slide last month, rebounding the overall annualized comparison to a healthy 3.7 percent pace.  All in all, the reports next week will bode well for the underlying pound, helping the current spot to push past 1.9500 in the near term.

Japanese Yen

All eyes turned to the Bank of Japan meeting next week, with little to no figures or news to trade on today.  Rising through 117 in the overnight, the currency continued to be boosted by correlations with the benchmark Dow Jones Industrial Average as the tertiary index improved to 1.6 percent.  The figure was optimistic for the world??™s second largest economy, rising above the 1.1 percent consensus figure.  Subsequently, the report helped to push the leading economic index higher to a 40.9 percent, above the 35 percent seen last month but couldn??™t help the coincident index which dropped to 45 percent from 55.6 percent.  Although nothing is expected from the monthly meeting early next week, traders will continue to scrutinize subsequent rhetoric throughout the quarter in gauging the likelihood of any further rate hikes in the economy.  Prospects look bleak in this department, unfortunately, as fundamentals continue to teeter on improvement.  As a result, the currency will likely continue to play its role in risk aversion, turning higher against a flailing US dollar.

Commodity Currencies

Canadian data looks to rule over the Comm dollar schedule next week with key releases including regional retail sales and consumer price index figures.  Consumer prices are expected to tick higher against retail sales which are expected to pullback in the month, lending to some cad bullishness in mid week action.  Interestingly, a higher consumer price figure may spark some speculation on the side of Canadian dollar bulls as the market attentively focuses on technical resistance just above the current price.  The notion would also fuel some support for a more stable benchmark interest rate in the long term, countering already priced in cuts towards the end of the year.  Bank of Canada Governor David Dodge continues to forecast slower growth in the world??™s ninth largest economy as sub sector expansion continues to teeter.  Australian data will start with a lower than expected dwelling starts report on Tuesday, subsequently to the visitor arrivals survey for February in the New Zealand economy.