NEWS / Foreign Exchange

The U.S. dollar slipped against the yen

The U.S. dollar slipped against the yen after the head of China??™s central bank made comments that the bank will stop accumulating foreign reserves.  Although the bulk of China??™s currency reserves is held in US dollars, the reserves will now accumulate in the new foreign investment arm China set up a month ago.  In other news this morning, housing starts in the US rose more-than-expected in February, easing woes a worsening construction slump may sink the economy.  New homes rose at an annual rate of 1.525 million last month, while building permits fell 2.5% to 1.532 million.  Look for the dollar to remain range bound ahead of tomorrow??™s FOMC announcement. 

Japanese yen strengthened against the US dollar due to the remarks from the Bank of China.  Asian stocks rose overnight led by the Nikkei 225 Index which rose 0.90%.  The Bank of Japan left monetary policy unchanged today, keeping the overnight call rate target at 0.50%, as expected.

The euro remained sidelined against the US dollar awaiting the FOMC meeting tomorrow. As central bank diversification is maturing and the US trade deficits have been stabilizing, the long term EUR rally since 2002 seems to be coming to an end.  If risk aversion eases in the near-term, the market could buy still buy more EUR as the ECB maintains rate hikes.

Meanwhile, sterling rose to high a three-week high against the dollar and rallied versus the euro after higher-than-anticipated inflation data reinforced expectations for another Bank of England rate hike.  Headline inflation increased to 2.8%, well above the BOE??™s 2.0% target.  Interest rate futures are now pricing in another rate hike to 5.50% by June.  The focus now is on Wednesday??™s minutes from the Bank of England meeting in March which should indicate where interest rates are headed.

The Canadian dollar jumped higher versus the greenback after an unexpected spike in last month??™s inflation supported talks of an interest rate rise.  Inflation was a higher-than-expected 2.0% in February, while core inflation rose unexpectedly to 2.4%

The Mexican peso strengthened slightly against the US dollar, getting a boost from stronger US housing starts, and Mexican stocks rose 0.88%.  Mexico??™s export sector is closely tied to the US economy.  

Kiwi remained strong near three-week highs and the Australian dollar rose to a 10-year high as investors took advantage of resuming the carry trade. 

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