â€˘ Japanese Yen: Breaks 105, First time in 3 years
â€˘ Euro: Fresh Record at 1.5238 on strong German Retail Sales
â€˘ Pound: Housing continues to slide
â€˘ US Dollar: Personal Spending and U of M on Tap
Yen Falls Below 105, Will the BoJ Intervene?
Rising for the first time in four months in January, German retails sales rallied the Euro over 50 points pushing it to a new all time high at 1.5238. A strong labor market and retailer discounts inspired shoppers and fueled expectations that consumer spending will rise in the second half of the year as inflation wanes. Eurozone headline CPI reported its highest reading in almost a decade at 3.2%, as food and energy prices continue to rise, but the core reading printed lower than expected at 1.7- its lowest reading in a year.
The dollar fell below 105 against the Yen-its lowest level in three years- on Fed Chairman Bernankeâ€™s warning of U.S. bank failures. Risk aversion flowed through markets as traders had visions of the Savings and Loans crisis, leading to carry trades unwinding and equities selling off, as the Dow declined over 100 and the Nikkei fell 322 points. Will this lead to intervention from the BoJ? This is a possibility as Boris Schlossberg wrote in â€ś105 Dollar Yen-Is That The Threshold Of Pain For The BoJ?â€ť
Mounting recession fears on dour U.S data and Bernankeâ€™s testimony has sent the dollar lower against most major currencies. As the ECBâ€™s hawkish stance strengthens and Fed rate cut possibilities increase- traders are pricing in an 86% possibilty of a 1% cut by April-the Euro may continue to make fresh all time highs. The only currency that hasnâ€™t made record gains against the dollar is the Pound. The U.K economy has been in lock step with the U.S. and with Nationwide reporting housing prices declining for the fourth month by 2.7%, we may see more rate cuts forthcoming from the BoE.
The U.S. consumer which has propped up the economy is showing signs of weakening as consumer spending and income data is expected to show today. If consumer spending disappoints-as it is expected to stagnate- it may confirm that we are in a recession and sink the dollar further. Any sign that the U.S consumer is holding up may be enough for the markets to grab onto and lead to a correction. Also, comments from Hank Paulson stating that he favors a strong dollar may give the greenback a boost.
Will the BoJ intervene? Join us in the USDJPY forum