EUR/usd

Last Friday was a quiet day for European markets, but quite a busy one for the US exchanges. Actually, it doesn't seem to be a surprise, considering loads of important statistics which came from the States on Friday. First, data on inflation were published. Due to the fuel price growth the consumer price index gained 0.4% in February and the annual growth rate remained at 2.9%, as was generally expected by economists. It's quite reassuring to hear about easing of the core inflation. However, in the coming months it most likely will go up due to the effect of energy prices on the prices of other goods. The industrial production data failed to surprise with any significant growth, though on the whole statistics are still very strong. The annual output growth rate made 4.0% in February against 3.4% in January. Capacity utilization slightly dropped down to 78.7% instead of going up to 78.9% as expected.  However, for the most part it can be explained by the increase in capacity itself, which is a good sign, indeed. The March preliminary UoM data on inflation expectations have leaped, showing that consumers are expecting the annual price growth to come in at 4.0% against 3.3% a month earlier. No doubt, it is the result of the pernicious impact of energy prices. So, we just need to see how Americans will react to it. Will they start buying goods at cheaper prices now or will they reduce consumption of other goods because of the increased spending on fuel and food? With Americans the answer to this question is not so obvious as with Europeans, who already now are extremely concerned about the rising oil prices and talking (in particular French-born IMF Chief Lagarde) the pernicious impact it may produce on the just-started recovery process. But leaving the statements of politicians aside, it may be noted that the expectations of higher inflation and the energy price surge play against the dollar, as it was observed on Friday, when traders preferred to take profits after a several-week growth in USD. The single currency shot up from 1.3040 to 1.3180 in a few hours.

GBP/USD

The British pound also took part in this high-demand-for-risk party. The sterling jumped to 1.5860 from 1.57 at the beginning of the day. That upswing was generally spurred by triggering of stop-losses on the break through the resistance around 1.5740. In fact, the bulls had made 3 vain attempts to take the level over the three preceding days. The Rightmove House Price Index, published earlier today, has once again sprung a surprise. In March sellers have raised their prices by 1.6% on average, which is 2.2% more than a year ago. Considering the monthly data, it should be noted that in these February and March prices have been rising much greater than in the same months a year  ago – 4.1% and 1.6% against 3.1% and 0.8 % respectively. However, such acceleration is unlikely to persist for long because of the reducing real earnings and high household debt load.

USD/JPY

The price of the Japanese yen has remained virtually unchanged against the dollar, despite the strong sales experienced by the latter. However, summarizing the week results, the yen has declined substantially against many of its counterparts. Taking into account that at the same time markets have significantly grown, the yen decline can be easily explained by the increased demand for low-cost funding. However, at this front the bank of japan has a very powerful rival – the United States. If in the early 2000s it was said that the Fed was keeping rates “too low for too long,” now the US central banking system has created the “zero interest rate environment”, accompanying it with the active quantitative easing. In other words, should the demand for risk grow, the yen decline against the dollar will be less than against other currencies.

AUD/USD

At the end of the last trading week the aussie again attracted traders' attention, after it fell down to 1.0430. That mark became the starting point for purchases of the Aussie on the growing demand for carry assets. It's of interest that at this we should regularly get messages about the weakness of the metal industry in China, which is the largest consumer of Australian exports of metals and coal. Certainly, there is some dissonance and something is sure to prove incorrect in the end. It's either China slowing down not that slowly, or the Aussie making a rebound before a dramatic fall.