Mixed data keeps greenback at the edge

After the testimony to the Senate day before, Alan Greenspan gave no fresh indications on the monetary policy during his second testimony to the House yesterday dipping the dollar near the crucial technical levels.

The euro stands smart near the 38% retracement of the drop from 1.3664 to 1.2732.
Dollar was little changed by Philly Fed Index of manufacturing activity which made a comeback to 23.9 in February from 13.2 in January, though the Employees index and future employment index fell. The jobless claims came at a 4-year low dropping by 2K to stand at 302K. Leading indicators index fell 0.3% following a 0.2% rise in December and the US import prices rose 0.9% last month courtesy rising petroleum prices.
Unchanged monetary policy of Bank of Japan after the disappointing GDP report kept the yen fighting against the 105.75 resistance level.
Cable picked pace after UK January retail sales rose to 0.9%, higher than the forecast.
Aussie fell 0.4% against its US counterpart after the central bank Governor Ian Mackfarlane saw the economic growth slowing down and the interest rates rising. Commodities too rallied with the yellow metal at a 3-week peak ($428.6 an ounce). Oil prices were down 1.6% on a sturdy US inventory surplus at 8.5% higher than last year.
Data to watch out for the day – US PPI, University of Michigan consumer sentiment.

Greenspan delivers first installment of ‘Greenspan-speak’

Greenspan’s signal of further interest rate hikes in the US and an unexpected increase in housing starts figures initially bolstered the greenback in a choppy trading but made the market vigilant on the mere mention of the words “current deficit” in spite of no expression of concern by the Fed Chairman.
Traders switched over to buying Euros after drubbing it to lows of 1.2968 levels. Euro currently trades at 1.3040 facing a stiff resistance at 1.3080 with sellers at these levels likely to keep the upside capped.
Dollar also gave back its gains in a volatile trading due to renewed soaring of oil prices to a 3-week high at $48.66 a barrel as geopolitical threats loomed, in Iran this time (explosion near its nuclear reactor).
Yen was dealt a double whammy with the yield differential tilted in favour of dollar and the release of the Japanese Q4 GDP figures showing a drop of 0.5% suggesting a technical recession in the economy. Japan’s officials disappointed after release of the stagnant growth figures of the Japanese economy, diverted the heat on China exhorting them to remove the fixed peg of Yuan. But further losses for Yen are limited to the crucial 106 levels, where there’s lots of selling seen by exporters.
Markets look towards a second dose of Greenspan’s testimony to the House of Representatives today and release of other data like the E-12 industrial production, UK retail sales, US leading indicators and Philly Index.

Weak US foreign capital Inflows takes a toll on the greenback

The greenback suffered significant losses against the international majors as the eagerly awaited US capital inflows data release indicated a decline – foreign capital inflows into the US plunged 31% in December to $61.3 billion from the upwardly revised figure of $89.3 billion in the previous month.
Traders took that as more than adequate reason to dump the dollar and euro soared past the 1.30 mark while sterling rocketed to 1.8950 notwithstanding the fact that capital flows is well above the $56 billion December trade deficit.
An unexpected drop of 0.3% in the December US retail sales added further woes to the greenback.
The single European currency touched as high of 1.3052 in the late New York trade before settling around the 1.3020 mark.
Exploiting the broad based dollar weakness and further assisted by positive fundamental data (steady CPI reading of 1.6% and an optimistic RICS housing data) cable surged to a 6-week peak of 1.8979.
The Japanese Yen accelerated its gains to as high as 104.39 as the Japanese purchases of US treasuries fell 0.4% in December following a marginal increase in November and two successive declines in the prior months.

Greenback recoups, traders eying data releases

The greenback recovered on early Tuesday morning in the Asian trade after suffering broad-based selling on late Monday night following the release of Japanese current account surplus figures, which soared 35% in December while the trade surplus surged 28%, further highlighting the persistent issues of the US current account and budget deficits.
The Japanese currency gained more than a whole yen before the dollar recovered the 105 levels. Markets would keenly look forward to Japan’s GDP data release due on Wednesday for further direction in the currency.
Euro found support from a few ECB officials who expressed concerns about potential inflationary pressures and the single European currency extended its rally above the 1.29 mark to the 1.2980s.
Currency traders seem wary of fresh position taking ahead of key events like Greenspan’s Congressional testimony later today and Japan’s Oct-Dec GDP data release.
Another key data release would be the US capital flows figures, which would indicate how the world’s largest economy is funding its deficits.
Cable sky-rocketed above the 1.89 mark, leaping more than 2 cents on a strong manufacturing report from Britain which fuelled expectations of a rate hike by the BoE.

Weak trade balance figures do the job on the dollar

The dollar remained range bound as thin trading prevailed in the markets in the absence of any major economic data.
Thursday’s US deficit balance figures at $ 56.4billion, which are still higher, threw the focus back on the US twin deficits as against improvement in data releases, paring the US currency lower against the majors.
Spurred on by the weak trade figures, the Euro rallied towards the 1.29 levels settling to end the week around 1.2870. With markets in doubt of further tightening by the fed, traders pared the dollar lower.
Sterling touched a high of 1.8712 and looks set to gain further in the week ahead.
The Asian currencies rallied against the dollar, as Yen soared after falling in three consecutive sessions earlier towards the 105 levels in Asian trades early today morning.
The dollar,s fate will now be decided by this week’s flurry of economic data from the US as well as Greenspan’s testimony. Markets will eagerly await Capital flow data from the US and the ZEW Survey from Germany, and the crucial retail sales as well as PPI figures from the US.

Bush tries to find cuts to meet his deficit pledge

President George W. Bush last week challenged Congress to cut domestic spending in an effort to meet his pledge to halve the US deficit by the time he leaves the White House.
In the toughest budget request of his presidency, Mr Bush called for savings at the departments of education, transport, housing and urban development and at the Environmental Protection Agency.
With a 4.8 per cent increase, to $419bn (€328bn, £225bn), at defence, the proposals would cut discretionary domestic spending outside national security by 0.7 per cent. Overall discretionary spending, with an increase of 2.1 per cent, would also be kept below the rate of inflation. Mr Bush called it "a budget that sets priorities. Our priorities are winning the war on terror, protecting our homeland, growing our economy."
But experts warned that the president's proposed restraint in only a small part of government would be insufficient to bring the US deficit under control. Mandatory spending, including pensions and healthcare for the elderly and poor, now represents more than half of government outlays and costs are rising fast.
The programmes targeted by Mr Bush - discretionary spending, excluding defence and homeland security - represent less than 20 per cent of total spending.
"Mr Bush is still failing the test of being a fiscally responsible president," said Chris Edwards, head of fiscal studies at the Cato Institute, a Washington think-tank. "Overall spending is projected to rise 3.6 per cent in 2006 even without further money for Iraq."
The White House forecasts a deficit of $427bn for 2005, falling to $233bn by 2009. These estimates do not include the cost of the operations in Iraq, the possible transition costs of reforming Social Security, or of fixing the alternative minimum tax - a levy for the rich that will start to encroach on the middle classes.
Democrats said that the administration's second-term goals - extending the tax cuts of its first term and reforming Social Security - would start to damage the fiscal outlook after 2009.
There was also a risk that Congress showed even less restraint than the president, experts said.
"If the past four years tell us anything, it's that Congress may well be adding extra spending to the president's plans," said Veronique de Rugy, at the American Enterprise Institute, a think-tank.
One proposed cut that the Congress is unlikely to accept is to ending support for Amtrak, the national rail service. Last year's subsidy of $1.2bn was granted despite calls from the president to cut it to $900m. So far, Mr Bush has never backed his calls for fiscal restraint by using his presidential veto to block a spending bill.
During his first term, overall spending rose at its fastest rate since the mid-1970s, according to the Office of Management and Budget - by 7.9 per cent in 2002, 7.4 per cent in 2003, 6.1 per cent in 2004 and 8.2 per cent in 2005.
Spending growth has averaged 7.4 per cent a year under Mr Bush compared with 3.5 per cent under Bill Clinton, his predecessor.