Posted on February 12, 2015 by the XM Investment Research Desk at 3:18 pm GMT
Economic data releases out of Europe were not the core focus of the market today and were in fact ignored. Eurozone industrial production was flat despite expectations for it to rise 0.3%. German inflation was down 1.1% month-on-month versus a 1.0% drop expected. The euro was nevertheless up on the day, reacting positively to news of a cease fire in Ukraine and markets put aside the lack of agreement over Greece for now. The Eurogroup talks have been pushed out to Monday. Meanwhile, the single currency was given another leg up against the dollar to hit a high of 1.1374 after disappointing US data.
There was a big miss on retail sales while initial jobless claims jumped back above 300,000. The volume of sales in America dropped 0.8% in January versus a 0.5% drop expected. This followed a 0.9% decline in December. Other disappointing data from the US showed that the number of new applications for jobless benefits rose to 304,000 versus 285,000 expected. This was an increase of 25,000. Meanwhile, the prior week’s data was revised to show 1,000 more claims. The data could disappoint the Fed hawks who are pushing for a rate hike by the middle of this year.
The dollar fell sharply against the yen after the US data, to drop from a pre-data high of 119.82 to 119.08. The pair hit a high of 120.36 early in the European session. Meanwhile, the yen was broadly stronger today after a report that showed comments from the Bank of Japan hinting at the possibility of backing off from further stimulus. The central bank believes that more policy easing would be a counterproductive step for now. Immediately after that report the dollar /yen pair dropped sharply to as low as 118.72.
Sterling was strong today, having rallied up to a high of 1.5386 from 1.5208. The Bank of England Inflation Report showed a balance towards a more hawkish stance. There was an upside revision to the inflation forecast to 1.96% in two years, from the previous forecast of 1.8% and to 2.15% in three years, from 1.95%. In addition, real income growth is expected to rise more rapidly, increasing the chance of an interest rate hike. However, BoE Governor Carney did balance his comments by noting that the Bank has the tools needed if a downside inflation surprise materializes, with the potential to cut rates.
The Australian dollar recovered post-jobs data losses. After hitting a low of 0.7642 in Asia following a report that showed a loss of 12,000 jobs in Australia in January and a jump in the unemployment rate to a 13-year high of 6.4%, the aussie rebounded to 0.7718 by early US session trading. A broadly weaker greenback also helped. On Friday RBA Governor Stevens will be speaking so it would be interesting to watch for any clues on interest rates.