Daily FX Market Outlook by AceTrader 21-2-2011

Market Review – 18/02/2011 20:16 GMT

Euro rallies as ECB official Lorenzo Bini Smaghi signals ECB may hike rates due to inflation pressures

Euro rallied broadly on Friday after Lorenzo Bini Smaghi, an European Central Bank Executive Board member, signaled the European Central Bank may need to raise rates earlier than expected.

Lorenzo Bini Smaghi told Bloomberg in an interview that as the economy gradually recovers n global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected’. He added that ‘it is a key challenge for monetary policy is to avoid spill overs from commodity prices; this requires the ability to take pre-emptive actions if needed’.  
Although the euro ratcheted lower fm Asian morning high of 1.3629 to a intra-day low of 1.3545 in European afternoon after PBOC raised banks’ reserve-requirement ratio by 50 basis points on Friday, the single currency jumped fm there on the hawkish remarks fm Lorenzo Bini Smaghi. Price later extended this week’s rise fm 1.3428 to as high as 1.3716 in late NY trading. Cross-buying in euro vs jpy, gbp n chf also supported the single currency as eur/jpy rose sharply fm 112.94 to 113.84, eur/gbp rallied fm 0.8359 to 0.8435 n eur/chf rebounded strongly fm 1.2896 to 1.2991.  
Japanese Finance Minister Yoshihiko Noda said the country intended to continue buying bonds issued by the European Financial Stability Facility as a stable investor.  
The British pound also strengthened on Friday as U.K January retail sales rebounded far more than expected, fueling speculation that BoE might be forced to hike rate in coming months. Despite trading sideways in Asian session, cable jumped fm 1.6148 after the release of much higher-than-expected U.K. retail sales data which came in at 1.9% m/m n 5.3% y/y in Jan. versus the economists’ forecast of 0.5% m/m n 4.0% y/y respectively. The pound eventually climbed to a high of 1.6264 in NY mid-day in tandem with euro.  
China raised banks’ official reserve-requirement ratio by 50 basis points to a record 19.5%, starting Feb. 24 on Friday. PBoC Governor Zhou Xiaochuan said policymakers may also use mean ‘including rates n currency’ to tackle inflation in an interview in Paris.  
A G-20 source quoted by Reuters as saying that Group of 20 negotiators have failed to reach agreement of a list of indicators by which to measure imbalances in the global economy n will leave it up to their finance ministers to try n seal a deal on Saturday.  
Data will be released next week:  
U.K. Rightmove house price, Germany manufacturing n service PMI n Ifo index, U.S. will be closed for President’s day on Monday.  
Germany Gfk index, Swiss trade balance, U.K. PSNCR, PS net borrowing, Canada retail sales, U.S. S&P/ Case-Shiller home price index, consumer confidence, Richmond Fed manufacturing index on Tuesday.  
Japan import/export data, trade balance, Swiss combined PPI, BoE MPC minutes, eurozone industrial orders, U.S. existing home sales on Wednesday.  
Germany GDP, eurozone business climate, industrial, economic, consumer sentiment, U.K. CBI distribution trade, U.S. durable goods order, jobless claims, new home sales on Thursday.  
Japan National CPI, U.K. Gfk survey, Germany HICP n CPI, U.K. GDP, U.S. GDP, PCE core n University of Michigan consumer confidence survey on Friday.