Daily Forex Fundamentals | Written by Lloyds TSB | Mar 16 09 08:49 GMT |
Overview & economic commentary
The US Fed and the BoJ hold monetary policy meetings on Wednesday - both are expected to keep their level of interest rates unchanged at 0-0.25% and 0.1%, respectively. It is possible that the US Fed will mention evaluation of purchases of US treasuries, as it continues to manage expectations of its response to the banking crisis and recession, but it is unlikely that there will be any surprises. In addition, the BoE will continue its asset purchase scheme, buying £2bn of 10-25 year gilts today and £3bn of 5 -10 year gilts on Wednesday. It also publishes the minutes of the 4/5 March meeting, which will give further insight into the economic rationale behind the decision to cut rates from 1.0% to 0.5% and whether or not there was any discussion of lowering rates to a 0-0.25% target band as in the US. Moreover, this week's speeches by BoE Governor King, ECB President Trichet and SNB member Jordon will attract attention. Key data releases this week include UK labour market data and public finances, EU-16 industrial production and the German ZEW economic sentiment survey. The US has a heavy economics calendar, including today's industrial production which may have contracted by 11% pa in February and capacity use of just 70.8% (below the historic low of 70.9% in December 1982). Also, the Empire Manufacturing Survey of -35 and TICS international capital inflows of $60bn in January ($34.8bn in December) are released today. Later this week, US consumer & producer prices, housing starts & building permits and a Q4 2008 current account of $116bn ($174bn in Q3) are due
Currency commentary
The US dollar has started the week under pressure, as the rebound in equity markets appears poised to continue, at least for now. Moreover, there is speculation that the Fed may signal on Wednesday that it is closer to buying treasuries. The BoJ also meets on Wednesday and may announce further measures to purchase assets, weighing on the yen. The G-20 meeting of finance ministers at the weekend in Horsham ended with no significant announcements, with the focus now moving on to main G-20 event in London on April 2. Ahead today, euro zone CPI is expected to confirm the flash estimate of 1.2% and is unlikely to move the markets significantly. In contrast, the ZEW survey tomorrow could spring a surprise - it has risen unexpectedly in the past few months and there is uncertainty whether this will continue. Some weak US data are expected this afternoon. Dollar weakness is reflected this morning in €/$ trading near 1.30 and £/$ above 1.4150. $/Y is little changed at 98.15, but €/Y and £/Y are up.