Investors sought the Euro over the U.S. Dollar as lawmakers remained in a stalemate in regards to the federal budget

nvestors sought the Euro over the U.S. Dollar as lawmakers remained in a stalemate in regards to the federal budget. Last week concluded on a positive note as congress reached an agreement in the 11th hour thereby avoiding a shut down of the government. This caused the Dollar to rebound against eight of its peers in anticipation of this week’s Retail Sales reports. The end of the week’s economic data revealed that Consumer Credit rose to $7.6 billion, which was quite a bit higher than expected. This in turn had a strong influence on the Federal Reserve’s interest rate decision and speculators are now wondering when the Fed will normalize its fiscal policy. Other reports showed that Wholesale Inventories remained at the same level. Canada’s currency traded at its highest price in 40 months as crude oil reached over $113.00 per barrel and gold surged to record prices. The Canadian Central Bank is expected to leave interest rates at 1% when its policy makers meet this week.

The situation in the U.S. and the fact that the Federal Reserve will continue to purchase debt assets through June brought investors over to riskier investments. As was expected, the European Central Bank raised interest rates. However, ECB President, Jean-Claude Trichet, gave no further indications as to when the next increase would take place. German exports rose to 2.7 billion MoM thus helping the Euro rally further. This in turn enforced the possibility of a further hike in interest rates due to the inflationary outlook. Traders will pay close attention to how the E.U. handles the Portuguese bailout and whether the situation will spread over to Spain. The Pound Sterling gained in price against the Dollar after economic reports indicated a rise in the Producer Price Index. This points to the fact that the BOE may not be able to wait longer on an interest rate decision. The CPI is almost twice the 2% target. This week will be an important one for the Pound as all eyes will be on the CPI figures for March.

The Japanese currency weakened as profit seekers sought riskier assets and as positive economic news resulted in more carry trade selling. Other news indicated that the country’s trade balance increased as the nation boosted exports in February. However, traders must keep in mind these stats were all pre-earthquake. The Yen dipped dramatically against the Euro on rumors that the BOJ will stick to its accommodating fiscal policies in order to aid the economy.


EUR/USD- ECB Raised Interest Rates

The Euro rallied against the U.S. Dollar as the ECB increased interest rates. However, this had already been expected. Analysts believe the Euro got a boost because investors stayed away from the U.S. Dollar and sought riskier assets.



GBP/USD- Producer Price Index Advanced

The Pound Sterling concluded the week on a strong note as economic data reported an increase in the Producer Price Index thereby supporting the case for a hike in interest rates. The current CPI is 5.4%, more than twice the BOE’s target 2%. Given speculations over interest rates, investors will focus on CPI for March rather than on other minor economic announcements.



USD/JPY- Currency Falls On Risk Appetite

Friday’s positive economic reports boosted anticipation of a possible hike in interest rates thus leading to added carry trade selling of the Japanese currency. The outcome was a weaker Yen. Trade Balance was rather reassuring, indicating a healthy export figures. However, these figures were pre-quake.