Risk aversion dominated the financial markets overnight, and in FX this means lower the European and commodity currencies and a higher yen. The pound, which remains the weakest link, fell the most after Bank of England Deputy Governor Charles Bean said a weaker currency will boost exports; traders speculated policy makers may continue efforts to support the economy. Germany’s IFO showed a decline in business sentiment and current conditions in February, and this was reflective of the soft European economic data. Greece is back in the limelight, as ECB Executive Board member Lorenzo Bini Smaghi said the country may need financial aid from the EU countries. Surprised? Except for the Nikkei, the Asia/Pacific stock markets closed up, but the European bourses, oil and gold are falling, and the US stock indexes are trading lower in pre-open market. The US economic agenda features the S&P/CaseShiller home price index and the consumer confidence report.x The short-term outlook is bearish for all of the European and commodity currencies and mildly bullish for yen. My model is long euro, Swiss franc and the commodity currencies, and short the pound and the yen.
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Overnight:
Australia: RBA deputy governor Ric Battellino said that the country was better prepared to deal with a mining boom than in the past because of its floating exchange rate and tighter monetary and fiscal policy frameworks.
Japan: Members of the Bank of Japan's monetary policy board felt that deflationary pressures are likely to continue for some time, minutes from the board's meeting on January 25 and 26 showed. The bank left its uncollateralized overnight call rate unchanged at 0.10% and held off on new policy initiatives.
Germany: The business sentiment fell to 95.2 in February from 95.8 in January, the Ifo Institute for Economic Research survey showed. The current conditions sub-index fell to 89.8 in February from 91.2 in January, but the expectations rose to 100.9 from 100.6.
France: The consumer spending on manufactured goods fell 2.7% month-on-month in January from +1.3% in the previous month, revised from +2.1%.
Italy: Consumer confidence indicator fell to 107.7 in February from 111.6 in January.
France: Consumer prices fell 0.2% month-on-month in January, reversing an increase of 0.3% in December. CPI rose 1.1% year-on-year in January, faster than December's +0.9%.
Italy: Consumer prices rose 0.1% in January after the 0.2% increase in the previous month. Consumer prices increased 1.3% year-on-year in January following a 1% increase in December.
Greece: Greece may need financial aid from the EU countries, ECB Executive Board member Lorenzo Bini Smaghi said. The amount will be much more limited than EUR 20 billion to EUR 25 billion.
Switzerland: The UBS consumption indicator climbed to 1.36 in January from 1.19 in December. The indicator is close to levels seen prior to the Lehman Brothers collapse.
UK: Bank of England Governor Mervyn King said in a Treasury Committee hearing that the economy has embarked on a process of healing and this will take time. The crisis did not originate in the non-financial sectors of the economy but that is where most of the costs are falling.
UK: British banks approved 35,083 mortgages for house purchases in January, down from 45,650 in December, data from the British Bankers' Association showed. Compared with the previous year, this represents an increase of 37.8%.
UK: Bank of England policy maker Kate Barker said there may be further adjustments in the UK housing market as banks curb home loans after gains in property values surprised her last year.
