By Omer Esiner of Travelex
The dollar regained its footing overnight a day after posting its largest single-day loss against the euro since July.
Investors had bought back the badly beaten euro Tuesday amid moderating concerns over a looming debt crisis in Greece. EU officials pledged to backstop Greek debt if the need arose, but sounded tough on making sure that Athens quickly implements its austerity plan aimed at bringing its soaring deficits back down to more manageable levels.
Although the euro appears to have stabilized off its recent lows, it remains vulnerable to renewed selling if concerns over sovereign credit risk in the euro zone flare back up.
Improving risk appetite this week pushed global equities and commodities sharply higher and benefited higher-yielding and growth-dependent currencies like the Australian dollar, the New Zealand dollar and the Canadian dollar. Chinese New Year holidays all week have also reduced concerns that Beijing will announce new measures to reign in red-hot credit markets.
The pound was mixed after data showed a surprise jump in the number of Britons claiming unemployment benefits in January, news that highlighted the mixed nature of the U.K.'s recovery. Separate news that all nine members of the Bank of England's Monetary Policy Committee voted to allow the bank's asset purchase plan to expire helped underpin the pound overnight.
Investors await a host of key economic news from the U.S. this morning, as well as the
FOMC minutes from its meeting in late January. The greenback stands to benefit from minutes that show an exit strategy from loose monetary policy may be closer than expected.
: Housing starts rose by 2.8% month over month in January to 591,000 annualized units, slightly above the 580,000 expected. December saw a healthy upward revision from 557,000 to 575,000. Permits, a forward looking gauge of homebuilding, fell by 4.9% month over month, as expected.
Import prices rose by 1.4% last month on a month-over-month basis, well above the 0.9% forecast. The dollars remains near the higher end of its intraday ranges ahead of industrial production figures and the minutes of the FOMC meeting later this afternoon.
: The euro steadied well off last week's nine-month trough against the greenback after Tuesday posting its best daily performance since July.
Investors, who had been overly short the euro over recent weeks, rushed to cover those short positions amid a backdrop of improving risk appetite and a very slight moderation in concerns over Greece's debt crisis.
EU officials this week renewed their pledges to support Greece, but downplayed the need for a bailout. They also sounded tough on Athens, giving Greece's government 30 days to begin implementing its austerity plan that calls for government worker pay cuts, tax hikes and reduced spending on entitlement programs.
Although the euro appears to have stabilized after falling nearly 10% against the greenback since December, it remains vulnerable to renewed selling if sovereign credit concerns flare up again. Greece's debt issues are not likely to disappear anytime soon and Athens' ability to implement sizable spending cuts during a recession remains very uncertain. Similar issues in Spain, Portugal, Italy and Ireland should also keep the euro's upside very limited by elevated credit concerns.
: Data overnight showed the number of Britons claiming unemployment surprisingly rose by 23,500 in January, confounding expectations for a decline of 10,000. The surprise jump in the claimant count wiped out the declines of the past two months and put the total number of Britons seeking unemployment benefits at the highest level since 1997. The unemployment rate remained unchanged at 7.8% as expected.
The figures highlighted the mixed shape of the U.K.'s recovery and underscored the view that lending rates in the U.K. will not be rising until sometime in 2011. The minutes from the Bank of England's Monetary Policy Committee meeting earlier this month showed that policy makers voted unanimously in favor of keeping rates unchanged and allowing the bank's 200 million-pound asset purchase program to expire. Still, the door to additional asset purchases remains open if the economy fails to pick up steam or if inflation falls back below the Bank of England's target level.
: The Canadian dollar remains near a three-week peak against the dollar, still broadly supported by improved risk appetite, firmer stocks and stronger commodity prices. Investors have favored the dollar-bloc currencies this week amid a backdrop of some reduction in sovereign credit risk in the euro zone. The Canadian dollar also remains well supported by the relative health of Ottawa's balance sheet, especially compared to its G7 counterparts.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.
You can view his daily reports, recording briefings, and quarterly reviews posted
. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.