By Omer Esiner of TravelexThe U.S. dollar turned in a mostly steady performance overnight as investors looked to this morning's U.S. reports on weekly jobless benefits and the trade balance for January. Today's U.S. figures could help to inject a dose of volatility to the currency markets, which has been largely absent this week given the dearth of U.S. data. An above-forecast reading on Chinese consumer prices in February fueled worries of more policy-tightening by the Chinese central bank, which dampened investor risk appetite to the benefit of the dollar and the Japanese yen. However, the yen's safe haven-induced gains were limited after data showed a downward revision to Japanese growth during the fourth quarter of 2009. The lower growth estimate increased expectations the Bank of Japan might soon introduce fresh easing measures in its battle against deflation. The BoJ next meets on March 16-17. Sterling stabilized off recent one-week lows against the dollar and euro, helped by a U.K. central bank survey that showed a modest increase in expectations for British inflation over the coming year. Still, given the economic and political headwinds facing the U.K. economy, the U.K. pound's overall heavier tone is likely to persist over the short term. The Canadian dollar neared a five-month high against the U.S. dollar on Wednesday, largely on the back of higher oil prices above $82 a barrel. However, the loonie parted with some of its gains due to the reduction in risk appetite and ahead of Canadian reports due out this morning on the trade balance and new housing costs. CNY: Consumer prices in China soared to a 16-month high on the year in February, fuelling worries of more policy-tightening by the Chinese central bank to keep a lid on inflation. China's consumer price index rose 2.7% (y/y) in Feburary compared to 1.5% (y/y) the previous month and the 2.3% (y/y) forecast. Investors fret that the People's Bank of China will be more inclined to boost interest rates which would put the economic brakes on the world's third-largest economy. The concern is that a policy tightening by China might also slow the global recovery. Consequently, investors generally headed for safe haven alternatives like the dollar and the yen following China's red-hot consumer inflation figures overnight.
GBP: The British pound stabilized off recent one-week lows against the dollar and yen and an 11-month trade-weighted low against a currency basket. Sterling receive a boost from a bout of profit-taking on its recent losses and by a survey by the Bank of England that pointed to a modest pickup in inflation over the coming year. The four-times-a-year survey by the BoE showed that inflation expectations over the coming 12 months rose to 2.5% from 2.4%. An increase in U.K. price pressures would limit the scope of easing measures at the central bank's disposal. CHF: As widely expected, Switzerland's central bank kept the target for its benchmark interest rate unchanged at a range of 0.0 to 0.75%. The Swiss National Bank also stepped up its concern about an appreciating franc which poses recovery risks by making exports from the Alpine economy more expensive. In a knee-jerk reaction, the euro rebounded from an earlier one-month low against the Swiss franc following the announcement. CAD: The Canadian dollar yesterday rose to its highest level since mid-October 2009 against the U.S. dollar, boosted by firmer oil prices around $82 a barrel. Positive loonie sentiment is also supported by Canada's improving economic outlook and by expectations that the Bank of Canada might lift interest rates from record lows later this year. As a top exporter of oil, the Canadian currency often takes its cue from commodity market movements. New housing prices in Canada rose 0.4%(m/m) in January, which was exactly as expected. Canada's trade surplus increased to C$800 million, which was above the C$100 million forecast and far higher than the previous month's 80,000 million surplus. A rise in commodity prices helped to boost Canadian exports in January. USD: U.S. weekly jobless claims fell by a smaller than expected 6,000 in the latest week to 462,000 from a downwardly revised 468,000. Last week's figure was originally reported at 469,000. Investors had expected a slightly bigger reduction in jobless claims to 460,000 in the latest week. The U.S. trade balance surprisingly narrowed to $37.29 billion in January compared to a revised $39.90 billion in December. Market watchers had expected a trade deficit of $41 billion in January. The unexpected decline in the trade balance was due mainly to a fell in oil imports, which dropped to a Feb. 1999 low in January.