By Omer Esiner of Travelex
The dollar fell against the euro overnight but was still within striking distance of last week's nine-month peak.
Investors bought back the badly beaten single currency to book some near-term profits and square their positions ahead of the weekend. Generally firmer stocks and commodities signaled improving risk appetite throughout global financial markets, which further encouraged riskier trading strategies and undermined some of the greenback's safe-haven appeal.
Going forward, however, the euro is likely to revert back towards recent lows across the board as sovereign credit concerns about Greece and other peripheral European nations weigh on the economic outlook for the 16-member bloc.
The yen, one of the market's best performers this week, also trimmed some of its recent gains. Generally soft global economic data combined with heighted sovereign credit concerns had pushed the low-yielding yen to two-week highs against the greenback and Canadian dollar and a one-year peak against the euro earlier in the week.
Data overnight showed the U.K. economy expanded at a slightly faster pace than originally reported in the final quarter of last year.
Still, on a yearly basis, Britain's contraction was worse than the initial reading of GDP showed. Moreover, the soft domestic data of late suggests that what little momentum the economy had in the fourth quarter was likely lost in the early months of 2010. Sterling fell back towards a nine-month low following the news.
: Fourth-quarter GDP was revised from an originally reported 5.7% annualized growth to 5.9%, better than the 5.7% expected.
Consumer spending was revised down to 1.7% (quarter over quarter) from an originally reported 2.1%. Business inventories fell by $16.9 billion, much less than the $33.5 billion decrease originally reported and accounted for 3.8% of the 5.7% rise in GDP. While the robust pace of expansion is not likely to be sustained in the quarters ahead, it highlights the fact that the U.S. is outpacing in recovery, a view that should continue to support the greenback.
: The euro rebounded from across-the-board lows this week, boosted by profit-taking and a bounce in investors' risk appetite.
The euro fell to near a nine-month low against the greenback, near a 15-month trough against the Canadian dollar and a one-year low against the Japanese yen. Continued sovereign credit worries about Greece and other eurozone nations have undermined the already anemic economic outlook for the 16-member bloc, a view that should keep the euro under significant pressure going forward.
Overnight, data showed the final reading of eurozone CPI for January rose to 1.0% (year over year) from December's 0.9%, exactly as expected. The benign outlook for eurozone inflation combined with expected fiscal tightening in a number of the bloc's economies should keep any policy normalization by the European Central Bank unlikely until sometime in 2011.
The yen, which rose to a one-year high against the euro and two-week highs against the greenback and Canadian dollar succumbed to some profit-taking overnight. The yen rose this week as soft U.S. economic data and sovereign credit concerns undermined the market's previously upbeat mood.
The low yielding yen, much like the dollar, tends benefit during periods of economic or financial market uncertainty. The yen should remain generally underpinned heading into the fiscal year-end in Japan in March, where firms tend to repatriate overseas earnings.
: The pound fell back towards a nine-month low against the greenback and a record low against the Canadian dollar overnight, despite an upward revision to the quarterly reading of fourth-quarter GDP.
Britain's economy expanded by 0.3% (quarter over quarter) in the final quarter of 2010, three times the figure originally reported. However, on a yearly basis, the British economy contracted by 3.3%, worse than the 3.1% originally reported.
While the upward revision to the quarterly GDP data is marginally positive news, the fact that more recent data out of the U.K. have pointed to a slowdown in recovery suggests that what little momentum Britain's economy had in the fourth quarter was likely lost in the first.
Sterling should continue to suffer from its lackluster recover, which keeps the door to further monetary easing open and from political uncertainty ahead of an expected general election later this year.
: Canada's current account, the broadest measure of trade in goods and services, posted a C$9.77 billion dollar deficit in the forth quarter, worse than the C$8.5 billion deficit forecast. Rebounding trade with the U.S. helped narrow the third quarter's C$13.8 billion shortfall. However, it was still the fifth-straight quarter of deficit following a decade of current account surpluses. The Canadian dollar was largely unmoved by the news.
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.