OVERNIGHT MARKET SUMMARY
The U.S. dollar slipped against a basket of its major rivals for the third straight session after a largely as-expected reading of the closely watched Consumer Price Index (CPI) this morning. Market participants, who have been increasingly focused on signs that inflation pressures in the world’s largest economy are mounting, saw this morning’s 0.2%(m/m) rise in headline CPI in February as a much more palatable reading of consumer inflation than January’s 0.5%(m/m) jump and combined with the benign print for February wage growth in last Friday’s payrolls report, this morning’s data assuaged some worries about runaway inflation. The dollar fell to session lows following the CPI data and the resulting rally in riskier assets.
The Japanese yen fell to a two-week low against the dollar before paring some of its earlier losses in the wake of this morning’s U.S. CPI data for February. The yen had come under broad pressure overnight, reversing its move higher from the previous session, as a mounting political scandal in Japan threatened Prime Minister Shinzo Abe and his close ally and Finance Minister Taro Aso.
A very quiet start to the 19-member bloc’s economic calendar this week left the single currency’s moves dictated by developments on the side of the Atlantic. As a result, the euro has enjoyed an improved tone against the greenback thanks in large part to the overall improvement in market sentiment this week and the resulting rally in riskier assets. With global trade war and North Korean worries moderating, investors looked to riskier and higher yielding assets and to economies, like the euro zone’s, where growth is expected to outpace the level of expansion in the U.S.
This morning’s benign U.S. CPI print helped fuel further gains in the Aussie, which hit its highest level against the greenback in two weeks. The idea of accelerating global growth with only minimal inflation, as well as moderating worries about a trade war and an actual war with North Korea helped underpin riskier assets like the Aussie as well as its neighbor from across the Tasman Sea, the kiwi.
USD: The U.S. dollar index fell for the third straight session overnight and added to its loses after a largely as-expected U.S. CPI report for February this morning. The data showed consumer price inflation moderated from January’s 0.5%(m/m) to 0.2%(m/m) in February, largely in-line with expectations. On an annual basis, consumer prices rose from 2.1% to 2.2%, also in-line with expectations. Core readings of inflation, which strip out volatile food and energy prices were in line with forecasts at 0.2%(m/m) and 1.8%(y/y) respectively. The overall data was consistent with the idea that the economy is accelerating with little signs (outside of January’s figures) that inflation pressures are set to spike anytime soon. The data should have little impact on the outlook for the Fed to lift U.S. borrowings costs by a quarter-point when it meets next week but will also do little to fuel expectations for a possible fourth rate hike around the end of the year. The greenback added to losses this morning following news that President Trump had fired Secretary of State Rex Tillerson, the latest in a series of high-profile personnel changes for the administration.
JPY: The Japanese yen fell to a two-week low against the greenback as investors trimmed exposure to the safe-haven currency amid another “risk-on” session in global markets overnight. The yen tends to underperform during periods of relative stability and improving investor sentiment. Broadly firmer global stocks kept investors confident in selling lower risk, lower yielding assets in favor of higher returns in riskier assets. Also weighing on the yen was a mounting political scandal involving the sale of state-owned land to a school operator closely linked to Prime Minister Shinzo Abe’s wife.
GBP: Sterling firmed against the generally heavier U.S. dollar overnight, hitting nearly a two-week high against the greenback after this morning’s as-expected reading of February’s CPI. U.K. Finance Minister Phillip Hammond told U.K. lawmakers in his half-yearly update on public finances, that the nation’s economy would likely grow a bit faster than expected in 2018- comments that added to the pound’s improved tone.
AUD: The Aussie hit a two-week high overnight and was hovering just under key technical resistance against the greenback amid a generally improved mood in global markets, which has bolstered the appeal of higher yielding and riskier currencies. The Aussie also benefited from strong domestic economic data showing the highest reading on record for NAB’s index of business conditions in February.
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