By Omer Esiner of Travelex
The dollar firmed back toward last week's eight-month peak against a basket of currencies overnight, broadly supported by Wednesday's upbeat U.S. economic news and generally hawkish minutes from the
latest policy meeting.
Industrial production and housing starts figures supported the idea that the U.S. is outperforming most of its major rivals in recovery, while the FOMC minutes suggested that U.S. lending rates could rise before rates in other top industrialized economies.
Fed officials talked about raising the discount rate at which the Fed lends to banks back to a more normal spread above the federal funds rate and beginning to trim the central bank's bloated balance sheet by selling assets accumulated while trying to stabilize the economy.
The comments suggested growing confidence in the economy and could signal that broader monetary policy normalization may come sooner than expected. That view contrasts with the still lackluster pace of recovery in the eurozone, the U.K. and Japan, where lending rates should remain at record lows for longer.
The pound slipped back toward an eight-and-a-half-month low after the U.K. posted a surprise budget deficit in January, highlighting the dire state of public finances in Britain. The news brought U.K. fiscal worries back to the forefront, a position that had been dominated by Greece and the eurozone in recent weeks.
: Thursday morning weekly jobless claims were reported rising from a revised 442,000 to 473,000 last week, well above the 430,000 expected. Continued claims were unchanged from a revised 4.56 million.
Wholesale prices rose by 1.4% (month over month) in January, almost double the forecast for a rise of 0.8%. Year over year, the producer price index was up to 4.6%. Ex-food and energy, PPI rose by 0.3% month over month and 1.0% year over year, both hotter than forecast as well.
The greenback firmed marginally following the slightly inflationary numbers, which could turn up the pressure on the Fed to normalize lending rates sooner than previously expected. However, inflation figures are likely to be somewhat overstated given the low baseline statistics from a year ago.
: The pound fell to a new four-month low against the Canadian dollar and back toward an eight-and-a-half-month trough against the greenback overnight.
Britain's government announced a surprise 4.34 billion pound deficit last month, confounding expectations for a surplus of 2.8 billion pounds and a new monthly record for a month of January.
The news highlighted the very dire state of public sector finances in the U.K., a story that had been somewhat overshadowed by mounting sovereign credit concerns in the eurozone.
Separate data showed that mortgage lending last month fell to its lowest level since February 2000. The disappointing figures pushed the pound broadly lower and highlighted some of the market's key concerns about the U.K. economy.
Although the Bank of England's minutes earlier this week showed that policymakers were unanimous in voting to allow the bank's asset purchases to expire, the lackluster economic recovery should keep the prospect of additional quantitative easing on the table. Consequently, the pound should continue to have a very difficult time sustaining any meaningful gains in the months ahead.
: The Canadian dollar firmed back toward a one-month peak against the broadly stronger greenback, touched on a new 15-month high against the euro and a new four-month high against the pound. The loonie has enjoyed a generally upbeat tone over the past weeks, benefiting from Canada's exposure to a recovering U.S. economy, the rebound in commodity prices and the relatively healthy state of the nation's fiscal position.
Thursday morning, data showed a rise of 0.3% (month over month) in consumer inflation in January, in line with market forecasts. Year over year, CPI rose markedly to 1.9%, slightly hotter than the 1.8% forecast. The Bank of Canada's core CPI number, which strips out volatile food and energy components, rose to 2.0% year over year in January from December's 1.5%. The loonie firmed on the data, which many saw as potentially turning up the heat on the Canadian central bank to normalize monetary conditions sooner rather than later.
: The Aussie fell from a three-week low against the greenback overnight, undermined by the FOMC's generally hawkish minutes yesterday and the pullback in risk appetite overnight. News that the IMF will sell almost 200 tons of gold pushed commodity prices lower and further weighed on the Aussie.
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.