USD Continues Rise Amid Doubt Over Greece

NEW YORK ( BBH FX Strategy) -- The U.S. dollar is continuing its broad rally as doubts over Greece persist, although currencies continue to trade in relatively tight ranges.

Overall, G10 currencies are mostly weaker against the dollar with the Japanese yen down 0.6%, currently trading at 80.31. Sterling is trailing gains in the yen, down 0.5% against the dollar. The Bank of England minutes revealed a more dovish voting arrangement than expected with two members voting for a 75-billion-pound expansion of QE.

The euro continues to slide for the second day, down 0.1% to 1.322 but is likely to remain confined to its recent range of 1.298 to 1.330. Near-term support is seen at 1.313 with resistance seen at the upper end of the recent range. The Australian dollar is trading lower to 1.063.

Global equities are mixed with the MSCI Asia Pacific Index up 0.09%, while the EuroStoxx 600 is down 0.8%.

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While European drama continues to command attention, the yen has quietly depreciated and is now at its lowest level against the U.S. dollar since last July and is at four-month lows against the euro. The unexpected increase in the Bank of Japan's asset purchases (QE) announced on Feb. 14 helped accelerate the yen's slide.

On the data front, eurozone PMIs for February surprised on the downside, with the composite PMI output slipping below 50 (to 49.7) after a slight expansion in January (at 50.4). The extreme cold spell in February may have dented sentiment to some degree as it kept consumers at home and halted construction projects.

On the other hand, the worse-than-expected headline numbers in both sectors may reflect some payback from the improvement in January when the mild weather may have distorted the figures. In any event, it remains to be seen if this is a temporary setback or the start of a renewed downtrend.

The data highlights that the eurozone is not out of the woods yet. In fact, growth disparities are getting more pronounced between as a result of the debt crisis, which is forcing governments to implement stark austerity measures.

As we have argued, China policy makers are stepping up to try to stem the growing downside economic risks. Overnight we had modestly supportive news relating to the bank lending and real-estate, as well as an improvement in the unofficial February manufacturing PMI from 48.8 to 49.7.

The Shanghai government has reintroduced a rule allowing people with at least three years of official residency to buy a second home. We take this as a sign that action is moving ahead of official rhetoric, which has continued to be on the restrictive side.

The local media suggest that China's four big banks are increasing lending toward the end of February, even though lending is still falling well short of expectations.
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