Market Review - 13/03/2014 23:05GMT
Euro falls sharply from a fresh 2-1/4 year peak on increased Ukraine worries and ECB dovish remarks
The single currency rose to a fresh 2-1/4 year high at 1.3966 against the dollar on Thursday as diminished expectations on more easing by the European Central Bank bolstered demand for the euro.
However, gain was capped as investors remained wary due to the escalating tensions between Russia and the West ahead of Sunday's referendum in Ukraine's Crimea region, now controlled by pro-Russian forces.
During the day, despite euro's sideways trading in Thursday's Asian session after rallying to 1.3915 in previous session, this renewed buying at 1.3843 lifted price higher to a fresh 2-1/4 year peak at 1.3966 in European morning.
However dollar's broad-based rebound due to upbeat U.S. economic reports (retail sales and initial jobless claims) knocked price down to 1.3937 in New York morning.
Later, the single currency tumbled to 1.3846 due to active cross-selling in euro against the Japanese yen together with the sell-off in global stock markets on increased Ukraine worries, and with the dovish remarks from ECB's president Draghi. Dow Jones index closed down by 231 points to 16109.
ECB President Mario Draghi said that the European Central Bank has been preparing additional policy steps to guard against deflation taking hold in the euro zone as the strong euro weighs on prices
U.S. Commerce Department reported that retail sales rose 0.3% in February, ending two months of declines and better than market's expectation for an increase of 0.2%.
Meanwhile, core retail sales which exclude automobile sales, rose 0.3% last month, ahead of expectations for a 0.1% rise. A separate report from Department of Labor showed that the number of people filing new claims for unemployment benefits fell by 9,000 to a three month low of 315,000 last week, from the previous week's revised total of 324,000.
Cable found support at 1.6607 in Asia and price started to rise in tandem with euro during Tokyo afternoon. Price ratcheted higher to 1.6686 in European morning and then further to 1.6719 ahead of New York open before easing in New York morning. Later, cable nose-dived to 1.6607 due to dollar's broad-based rebound on safe-haven demand.
Versus the Japanese yen, dollar fell below Wednesday's low at 102.55 to 102.41 in Asia as lackluster data from China fuelled risk aversion and despite a brief rebound to 102.80 in New York morning after stronger-than-expected data on U.S. retail sales and initial jobless claims, renewed risk aversion due to the sharp sell-off in global stock markets triggered another round of cross-buying in yen and U.S. dollar tumbled to as low as 101.54 in late New York before recovering.
Chinese industrial production rose 8.6% in the first two months of 2014, according to data released on Thursday, missing market expectations for an increase of 9.5%, while Chinese retail sales rose by a smaller than forecast 11.8% in the same period.
In other news, ECB's Governing Council member Jens Weidmann said 'we have no Fx target; but euro appreciation can influence inflation outlook, which mean that we have to take this into account for monetary policy.
Watching German house price developments very closely, there is no systemic risk so far, and seeing normalization in money markets in recent months.
we have policy instrument at our disposal if needed to deal with low inflation, there is not much room let for further conventional measures, the need to discuss non-conventional measures together with the legal questions around these.'
Data to be released on Friday:
New Zealand manufacturing PMI, BoJ Feb meeting minutes, Japan industrial production, capacity utilization, Germany CPI, HICP, U.K. trade balance, U.S. PPI and University of Michigan consumer confidence.