USD Recoups Amid Sharp Stock Advance

The greenback has recovered from some of its earlier sharp losses against the euro, which slumped past the 1.28-level to 1.2822. The primary driver in the foreign exchange market on the Tuesday session was the strong rally in US equity bourses, with the Dow Jones surging by over 4.5%, the Nasdaq advancing by over 6.0% and the S&P 500 gaining by over 5%.

US equities regained their footing after heavy selling in recent sessions on the heels of an internal memo from Citigroup CEO Pandit, describing the current quarter as its best since 2007. Pandit said he was encouraged by the strength of Citigroup’s business in the current year and was profitable for the first two months of the year, adding it was the “best quarter-to-date performance since the third quarter of 2007”.

There was little economic data from the US, seeing only the release of January wholesale inventories and wholesale sales. The January inventories figure declined by 0.7% while the sales number fell by 2.9%. Scheduled for release on Wednesday will be the February Federal Budget, expected to show a deficit of $200 billion, up from $175.56 billion in the previous month.

Fed Move Slams USD

The dollar collapsed following the FOMC monetary policy decision in the Wednesday afternoon session. Although the Fed left its benchmark interest rate unchanged at 0%-0.25%, it announced additional measures to prop up the economy and loosen credit to the markets. The statement announced, “To provide greater support to mortgage lending and housing markets, the Committee decided to increase the size of the Fed’s Balance sheet further by purchasing up to an additional $750 billion of agency MBS, totaling $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion”. The Fed also announced the purchase of up to $300 billion of longer-term Treasuries in the next six months.

The surprise move by the Fed was lauded by the US equity markets, sending the Dow Jones higher by over 1.5% and the S&P 500 sharply up by over 2.4%. However, the greenback sold off heavily – tumbling to a fresh two-month low against the euro at 1.3436

USD Mixed Ahead of Central Bank Decisions

The dollar was mixed in the Tuesday session, losing ground against the euro and the Loonie despite better than expected US economic reports. The February housing starts figure unexpectedly jumped to 583k units, up by 22.2% from a month earlier at 466k units. Building permits also beat consensus estimates, improving to 547k units defying calls for a decline to 500k units from 531k units in the previous month. Producer prices for February were mixed with the headline prices at 0.1%, down from the previous month at 0.8% while declining by 1.3% on an annualized basis versus a 1.0% drop previously.
The key highlight for Wednesday will be the FOMC monetary policy decision, due out around 2:15 pm. While the Fed’s room for maneuver is limited at this point, the accompanying policy statement will likely reiterate the FOMC’s support for providing the necessary means to prop up the economy. Additional reports due out tomorrow include February CPI and the current account balance

USD Slumps as Stocks Surge

The greenback and yen traded lower across the board at the start of the week on the heels of a sharp surge in the US equity bourses. The catalyst for the steep gains was the Treasury’s plan to purchase nearly $1 trillion in bad assets from banks – with private investors expected to provide the predominant source of the purchases and thereby avoiding nationalization. The S&P 500 surged by over 7%, while the Dow Jones and Nasdaq were both up approximately 6.8% on the Monday session.
Economic reports released from the US revealed an unexpected jump in existing home sales for February, up by 5.1% to 4.72 mln units from 4.49 mln units a month earlier – defying calls for a decline of 5.3%. In the session ahead, the calendar consists of the January Richmond Fed survey and home prices.
The foreign exchange market will continue to take its cues from the equity markets with a shift to riskier assets remaining detrimental for the dollar and the yen. We expect the euro to further extend gains over the coming sessions against the greenback with our initial target around the 1.39-region.