German Economic Sentiment dropped to 7-Month Low

March 19, 2014

On Tuesday March, 18 the US dollar was traded mixed before the announcement of 2-days FOMC Meeting on Wednesday. The US dollar increased vs. the pound sterling and the Canadian dollar, but decreased vs. the yen, the Australian dollar, and the New Zealand dollar – having almost no changes vs. the euro and to the dollar index. The Canadian dollar dropped after speech of BOC’s Governor Poloz. The pound sterling decreased after release of important UK data on Wednesday.

On Wednesday the markets expect the finish of the first FOMC Meeting under the chairmanship of Janet Yellen. It is expected that FOMC will reduce monthly asset purchase program for the third time by $10B, reducing it to $55B – the possibility of final statement change is not excluded. On Wednesday according to the results of the Meeting Fed Chairman Janet Yellen will hold a press-conference. Central Bank’s forecasts concerning future interest rate and inflation will be in the center of attention.

Controversial statistic data in the USA didn’t assert considerable influence on Tuesday. The US Building Permits increased to 4-month high, whereas New Housing Starts slightly decreased having dropped to 4-month low. Building Permits increased in February by 7.7% to 1018 thousand from 950 thousand in the previous month, having considerably exceeded the expectations – these are the largest growth rates since October, 2013.

At the same time Housing Starts decreased in the previous month by 0.2% to 907 000 of houses – against the expectations of growth to 910 000. Consumer Price Index appeared to be as it was expected, but annual inflation growth rate dropped in February to 4-month low at the level of 1.1% from 1.6% in January, which appeared to be lower than expected 1.2%.

The yen strengthened its positions despite the growth of appetite for risks – stock markets increased after the Russian President Putin announced that Russia doesn’t want Ukrainian separation. According to Putin Russia didn’t garrison to Crimea, but just enhanced its grouping envisioned by the international agreement. President of Russia Putin has signed a bill to absorb the Crimea peninsula into Russia despite the USA and European remedies.

The euro was traded downwards amid sharp decrease of the German Economic Sentiment to 7-month low, but till the end of the day in gained back all the losses. German ZEW Economic Sentiment dropped in March for the third month in a row – to 46.6 against 55.7 in February, having considerably exceeded the expectations of decrease to 53. Sentiment decreased due to concerns about the Chinese situation and still uncertain situation around Russia and Ukraine. At the same time Current Assessment increased in March to 51.3 from 50.0 in February, having reached the highest rate since August, 2011.

 

The Eurozone Trade Balance data appeared to be rather weak. The Eurozone Trade Balance proficit decreased in January to the year’s low at the level of €0.9B from €13.8B in December. During the whole 2013 the proficit reached €153B against €80B in 2012.Herman Constitutional Court admitted on Tuesday that the European Stability Mechanism (ESM), permanent Eurozone rescue fund correspond with the country’s constitution.

The Swiss franc also negated its losses of the first half of the day when it dropped after the reduction of GDP and Inflation growth rate forecasts for 2014 by the Swiss government. GDP growth rate forecast for 2014 s reduced from 2.3% to 2.2% and Inflation growth rate - from 0.2% to 0.1%. The pound sterling decreased before the Wednesday release of Labor Market report, BOE’s Meeting Minutes, and Annual Budget Release.

On Tuesday the Australian dollar refreshed its year’s high after the release of Reserve Bank of Australian last Meeting Minutes, which confirmed that the rates will stay unchanged during some time more.  Though AUD stays high according to historical standards, the most rational course might be the period of unchanged rates – RBA announced. The New Zealand dollar closed higher than $0.86 for the first time since April 2013.

The Canadian dollar dropped after the speech of Bank of Canada Governor Steven Poloz, during which he announced that interest rates reduction possibility can’t be shut out, if the inflation downward risks will strengthen its positions. Poloz pointed weak economy growth in the first quarter, and slow inflation rate data in February, which will be released on Friday. Poloz announced that the Canadian economy growth will hardly overcome weakness for another couple of years.

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