Wednesday’s trading was marked by low volatility and the continuation of a range bound market in most pairs. The Dollar traded higher against most of the major currencies but only just. It gained against the still-falling Euro, to end the day at 1.2613 and fell against the Swiss Franc to 1.1081. A trade department economic report showing a widening gap between US exports and imports was not enough to trigger a sell-off. The trade gap widened by 2.5% to 40.4 billion in February. These are the first negative figures the US has released for some time and are something of an anomaly. Given the relative weakness of the Dollar until recently they are the fly in the ointment of recovery.

   The Euro ended down on Wednesday closing at 1.2613 to the Dollar and 0.8516 against the Pound. The fall happened despite positive economic news showing GDP figures from Germany were better than expected withQ1 GDP up 0.2% QoQ, with no change having been expected and up 1.6% YoY with only YoY 1.2% expected. General Euro zone figures were also encouraging, with 0.2% QoQ increase compared with the 0.1% expected. The ECB purchase of sovereign debt in peripheral European nations has helped to reduce the cost of debt financing in Europe, and this has contributed to an easing of worries about the euro. Spain announced measures to cut wages and reduce its budget deficit. Nevertheless the EUR/USD stubbornly refused to climb above resistance at 1.27.

   The Pound had a mixed day ending down at 1.4823 against the Dollar and 137.39 against the Yen and gaining against the Euro to finish up at 0.8516. The Pound initially traded higher based on the news that the conservatives have struck a coalition with Liberal Democrats and are going to be able to push through deficit reduction measures in an emergency budget. This was favourably received by the president of the BOE Mervyn King who actively endorsed the policy. Nevertheless, a dovish BOE inflation report, hinting the BOE had not ruled out further bond purchases brought Sterling back down; and an increase of 53,000 in unemployment, bringing the total to 2.51 million contributed to further falls. Despite elevated CPI the BOE noted that the downside risks in the economy had increased somewhat.

   The Yen had a mixed day as risk appetite returned and equities traded higher. It finished the day at 93.23 against the Dollar a touch lower and a touch higher at 138.18 against the Pound. There was a limited reaction to the statement by MOF official Kaizuka that Japan plans to take action to extend the maturity of its debt to reduce funding risks. He also attempted to allay fears of a downgrade by stating categorically that Japan will not be the next Greece because it can tap its huge domestic savings.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst