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Dollar Rebounds Overnight

The U.S. dollar pared its initial losses in European trade, after a closely watched gauge of German business sentiment slipped more than expected this month.

The U.S. dollar recovered from overnight lows to trade slightly higher against most of its major counterparts. The greenback had briefly slipped to a one-month low against the Aussie overnight after generally hawkish comments from a Reserve Bank official highlighted the relative resilience of Australia's economy and signaled further lending rate hikes in the coming months. The comments buoyed risk appetite in general, which pushed equities higher and the greenback lower in Asian trade.

The U.S. dollar pared its initial losses in European trade, after a closely watched gauge of German business sentiment slipped more than expected this month. Data from that index, the Ifo, undermined some of the market's appetite for risk and revived some demand for the lower-yielding USD and JPY.

Sterling was the big loser overnight, slipping back toward a nine-month low against the U.S. dollar. A very fragile economic outlook was provided by Bank of England policymakers before Parliament reminded investors that the door to additional credit easing remains open and that the U.K. will likely lag the rest of its major counterparts in its economic recovery.

Investors also awaited the Case/Shiller home price index and U.S. consumer confidence.


: The Australian dollar briefly rose to a one-month peak against the greenback and firmed toward a three-week high against the Canadian dollar after the Reserve Bank's Deputy Governor Ric Battellino said the nation's dominant mining industry's boom could continue beyond 2020 and that monetary policy would need to consider its impact on the broader economy. Australia's massive mining industry has enjoyed a boom as a result of soaring demand for natural resources from China, which has helped the broader economy become one of the few industrialized nation's to avoid recession.

The comments overnight added to expectations that the RBA will resume its monetary-tightening campaign in March after remaining sidelined earlier this month. The comments also helped bolster broader risk appetite and supported commodities and stocks during Asian trade. The Aussie should remain underpinned by the generally upbeat outlook for its economy, but could become vulnerable to news of further monetary tightening by Chinese authorities in the months ahead.


: The single currency pared its overnight gains after Germany's closely watched Ifo survey of business confidence slipped from a reading of 95.8 in January to 95.2 in February, confounding expectations for a rise to 96.1. It was the first drop in the Ifo since March and fanned worries that Germany's already tepid economic recovery could falter in the first quarter. Separate data showed a drop in Italian consumer confidence and the biggest drop in French consumer spending in two years. The disappointing economic data from Europe's three largest economies highlighted the very anemic nature of the bloc's recovery and the underscored the view that the ECB will likely lag the


in monetary policy normalization. More broadly, risk appetite was dented by the data, which saw stocks and commodities fall across the board.


: Bank of England policymakers testified before the Treasury Committee and took questions on this month's Quarterly Inflation Report. Comments from BOE Governor Mervyn King and his fellow MPC members sounded a very cautious tone with regard to the economy's outlook. King warned that the U.K.'s recovery remains very fragile and that risks to the BOE's growth outlook remain to the downside. The comments highlighted the fact that the door to further quantitative easing, the asset purchase program that the BOE paused earlier this month, remains open. Sterling was also undermined by comments that seemed to play up the benefits of a weaker pound, especially as related to increased demand for the nations' exports. Sterling should remain vulnerable to worries about the pace of the U.K.'s recovery, political uncertainty and its government's dire state of public finances.


: The franc fell against the greenback and the euro overnight, undermined by speculation that the SNB was actively buying EUR/CHF to weaken its currency and protect its export sector from excessive currency appreciation. The SNB has recently softened its stance against CHF strength, but has maintained that it will continue to intervene to weaken its currency to boost the competitiveness of its exports and ensure that inflation does not fall further below target.

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.