The final numbers for the major currencies mask what was in fact a volatile trading day. The EUR, GBP, and CHF all settled within .1% of their close on Monday, as the European session’s moves were undone during the US session.
PMI data from the US reached a 7-year high, indicating a significant recovery in the manufacturing segment of the economy. PMI data from Switzerland was stronger than expected, although the Swiss Franc’s reaction was limited.
In a speech addressed to Congress, Fed Chairman, Bernanke, said he was not concerned that the recent spike in oil prices will hurt the economy, unless the uptrend continued. He also noted that although the economy is showing healthy signs of growth, job growth remains anemic. His remarks suggest the Fed is in no rush to raise rates or cut the quantitative easing program prematurely.
The Euro was pushed up in the European session, thanks to an unexpected drop in unemployment in Germany. The Euro made another attempt at breaking past 1.3850, before pausing and reversing back down. The pair is unlikely out break out before Thursday, when the ECB will release its rate decision and hold a press conference. Traders expect hawkish remarks thanks to excessive inflation in the Eurozone, but the ECB is not expected to raise rates just yet.
The Pound briefly spiked to a new 14-month high, rising to 1.6325, thanks to an unexpected rise in home sales data. The Nationwide House Price Index rose .3% in February, whereas analysts had expected a drop of .2%. The pair surrendered its gains as US indexes began to sell off, dropping back down to 1.6250. Meanwhile, the Governor of the Bank of England, Mervyn King, said raising interest rates as a gesture against inflation would be self-defeating. His comments somewhat cloud the interest rate outlook, although the market reaction was muted.
Gold soared to a new record high, as investors dumped equities in a flight to safety. Oil ended the day above $100, it’s highest close in years, as renewed angst over Libya impacted on the commodities markets.
Friday’s non-farm payrolls data will be carefully watched. Significant job growth has failed to materialize even as the US economy recovers. A significant jump in employment could change the interest rate outlook for the US dollar. The ADP Employment Change report will be released Wednesday, and is often seen as a barometer for Friday’s report. The Fed will release the Beige Book, and the UK will release construction PMI data.
Written by bforex.com
