US dollar gains for 3rd day versus yen, extends gains on pound and euro

US Dollar:

The dollar gained for a third day versus the yen on optimism the recovery in the worlds largest econ¬omy is gaining momentum. The greenback extended gains over the pound and euro as cable fell through the $1.60 handle and EUR/USD was seen to go under the $1.41 level. US consumer spending rose 0.5% in Febru¬ary, after increasing 0.2% the prior month, according to a Bloomberg survey before today’s Commerce Depart¬ment report. Strong US data would add credence to the Fed hawks view that the central banks super-accommodative stance needs a re-think. Such a scenario would provide fundamental support to the dollar.
Data 13.30: Personal Spending m/m 0.6% from 0.2%, Personal income m/m 0.5% from 1.0%. 15.00: Pend-ing Home Sales m/m 0.0% from –2.8%. Speaker 20.40: FOMC Council Member Boivin.

Pound:

Holders of sterling can be forgiven for being glad to have seen the back of last week as losses were posted across the board. If we are looking for positives as we start a new trading week, slim pickings I’m afraid but at least we have seen GBP/EUR halt its dramatic slide seen last week as a low of 1.1344 was posted after bouncing up to 1.1370 in early morning trade. The euro has taken a knock in the wake of a failure of the EU to push through a much needed bailout mechanism during a summit at the end of last week. A recovery in the value of the dollar has seen cable continue its drive lower as we have now seen GBP/USD fall under the key psychological level of $1.60 as the dollar gains on interest rate hike speculation and stronger than expected economic data. This links in well to why the pound has fallen from grace so much, as interest rate rises in the UK are now not expected to be pushed up as quick as previously expected. This has seen funds pulled out of the pound and invested elsewhere as a better and quicker return would be realised via other ccy’s. No data.

Euro:

This morning has seen the euro lose its sparkle after major gains were posted last week against the ma¬jors. The single currency fell against the dollar and yen after European Union leaders failed to solidify a perma¬nent bailout mechanism during a summit at the end of last week. The euro also weakened after German Chan¬cellor Angela Merkel’s coalition was defeated in its South-western heartland, clouding the political outlook for Europe’s biggest economy. Against the pound there was not so much of a fall but more of a levelling off as the UK currency still finds itself under global pressure. The single currency also snapped a two-day gain versus the Swiss franc in the wake of the EU failure to solidify the bailout. The euro declined to $1.4054 against the buck after earlier dropping to $1.4021, the weakest level since March 18th. Elsewhere the Portuguese government has come under renewed pressure to accept a European bail-out at the start of another crucial week for the eurozone. No major data. Speaker 16.00: ECB President Trichet.

General:
• The yen dropped against all 16 of its major counterparts on speculation Japan will be among the last of the major economies to raise interest rates. The BOJ will increase its benchmark rate by two basis points over the next 12 months, compared with 37 basis points of increases by the Fed, Credit Suisse Group AG indexes show.
• The Swiss franc has surged 7.7% in the past year, the most among the 10 most-widely traded currencies tracked by Bloomberg Correlation-weighted indexes. Not even cash spent by Switzerland's central bank last year to curb the francs strength was enough to keep it from appreciating more than 18% against the euro. The franc has become the ultimate safe haven.

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