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    European Session – Weaker dollar lifts euro to test 1.08, loonie stronger after Canadian CPI data

    Posted on March 20, 2015 by the XM Investment Research Desk at 3:16 pm GMT

    canCPImarchThe dollar was weak across the board today, allowing the euro to have its best weekly performance in more than two years. The Federal Reserve was the main driver of the greenback’s weakness, after a dovish policy statement on Wednesday which signaled that interest rates will rise later than sooner. The dollar attempted to recover on Thursday after the biggest one-day sell-off since 2008 on Wednesday but the recovery did not hold.

    The euro was able to rally to 1.0820 today, after falling to 1.0612 on Thursday, heading to finish its best week since January 2013. Helping buoy the single currency were easing concerns over a cash crunch in Greece. Athens pledged that it will submit reforms that are required for it to be able to access a bailout to avert going bankrupt. EU officials reported that if Greece comes up with a convincing plan to get its debts under control, Eurozone finance ministers could meet soon to release some funds.  Focus turns to Monday’s Merkel-Tsipras meeting.

    Next week will be critical for the dollar as US inflation and GDP data are due. These are important for rate expectations and any disappointing numbers would be negative for the greenback. Fed Chair Yellen made it clear on Wednesday that the timing of the first rate hike is data-dependent.

    The dollar fell to 120.56 versus the yen, lower than today’s Asian session open of 120.78. Meanwhile, the greenback fell sharply against the loonie after Canadian inflation data. CPI increased just 1% in February, in line with expectations and rose at the same pace as in January on a year-on-year basis. Lower oil prices played a role in the soft inflation number. For February, the core inflation rate, which usually excludes some volatile items such as food and energy, fell to 2.1% year-on-year, after increasing 2.2% the previous month. A separate report showed that Canadian retail sales for January dipped  1.7%, more than the expected drop of 0.7% but not as much as the prior month’s 2.0% decline. The weak retail sales data was shrugged off and USD/CAD fell to 1.2582 from a pre-data high of 1.2722.

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