The U.S. dollar is trading higher against all of the major currencies this morning with the exception of the euro. For the most part it has been a quiet start to the North American session with country specific factors driving FX flows. The Japanese Yen fell to fresh multi-year lows after Bank of Japan Governor Shirakawa revealed that he plans to step down 3 weeks early on March 19th. This suggests that the Japanese government is close to announcing a successor who will undoubtedly reinforce the central bank’s dovish message. The Australian dollar on the other hand dropped below 1.04 after the Reserve Bank left the door open for additional easing and remains the weakest currency next to the Yen this morning. The central bank said, “The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.” The RBA’s dovish bias contrasts sharply with the steady hand of the Fed, ECB and RBNZ, which helps to explain why the AUD has and should continue to lose value against those currencies.

Better than expected service sector activity in the Eurozone along with rallies in European equities and lower bond yields prevented the EUR/USD from falling for the second day in a row. French President Hollande’s calls for a medium term targeted exchange rate fell of deaf ears – there’s no question that European politicians don’t like a stronger currency but the only comments that matter are the ones from the ECB. As a result, this week’s ECB meeting and press conference by Mario Draghi will be extremely important for the euro.

Meanwhile non-manufacturing sector ISM and IBD/TIPP Economic Optimism index were the only pieces of U.S. data released today and according to the ISM report, service sector activity expanded at a slower pace in the month of January. The index dropped to 55.7 from 55.2. The details of the report showed weaker business activity, new orders and backlog. However investors shouldn’t be terribly concerned because there was strength beneath the headlines. Supplier deliveries increased along with employment and new export orders. The ISM report is consistent with a gradual recovery in the U.S. economy. Consumer confidence also ticked up slightly in February with the IBD index rising to 47.3 from 46.5.

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