Euro sunk by ratings downgrade for Spain

British pound – The Monetary Policy Committee left policy unchanged at the March meeting today in line with expectations. Dealers had been hoping for the unexpected and that pound might rise on the shock value of capitulation by more members giving in to calls for an early interest rate rise. The pound rebounded from weakness associated with broader risk aversion as well as the impact on the euro caused by a Moody’s downgrade for Spanish debt. But it seems that once the Bank’s announcement was out of the way the last vestiges of bullishness disappeared with the pound sliding towards $1.6125. Against the euro the pound rose to 85.17 pence per euro.

Aussie dollar – The Aussie has been plagued by a series of negative events each threatening the growth trajectory and leading many to conclude that the RBA will be slower to make further monetary policy changes, if any at all. Today the scenario was worsened by the unexpected news of a trade deficit from China during February and a weak domestic employment report. Between them the reports have sent the Aussie lurching fast towards parity with the dollar and at its weakest moment earlier touched $1.0022 where it hasn’t traded since February 24. Chinese exports rose at a meager 2.4% pace while imports continued at a brisk 19.4% pace. The data was partly confused by the impact of New Year holidays around the region, but reality is that the Chinese may simply be balking on ever-higher costing raw materials. The net change in February employment in Australia was a drop of 20,000 jobs, which shocked those expecting that the rude health of the mineral-rich nation would boost jobs by 10,000. However, some of the sting was lost when analysts realized that within the data there was a firm switch between full-time and part-time positions. Nevertheless, the net change disappointed and a slight dip in the overall participation rate proved the point.

Japanese yen – The yen is losing out to a stronger dollar this morning as risk aversion flares. The dollar now buys the most yen since February 22 at ¥83.14. Part of the Japanese unit’s problem today was a larger fourth quarter contraction in GDP than forecast with the economy shrinking by an annualized 1.3% in the three months ending in December. However, the rationale behind the decline is easily explained by downward revisions to capital expenditure and consumer spending accounted for by changes to policy stimulus measures. Recent data has also firmed on both accounts and optimism over the outlook is firming.

Canadian dollar –The Canadian dollar pared midweek gains that drove it to a three-and-a-half-year high against the dollar as global growth concerns loomed large. The loonie slipped ahead of an international merchandise report to buy $1.0287 U.S. cents.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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