Yesterday, the USD weakened against the majors after the US Energy Department announced it plans to double the US oil reserve to1.5B barrels till 2027. Oil prices reacted immediately boosting 4.7% to 55.04 in the New York Mercantile Exchange. The spike in oil prices started as cold weather in the northeast is causing increased demand for heating fuel in the region. There is a strong negative correlation between oil prices and the USD. While oil prices go down the USD got stronger and vice versa. The impact of the surge in oil prices was immediately felt in the currency markets as dollar bulls hurried to take profits on their long positions and bears initiated new shorts, thus sending the USD lower.
The Leading Economic Indicators report came in firmer than expected, as improvements in the labor market and jobless claims pushed the index higher to 0.3% in the month of December from a flat reading the prior month. The report had little impact on markets and neither did the Richmond Fed which released its monthly regional manufacturing survey indicating a 7 point drop from the previous 8 reading.
Apart from Oil Inventories data coming in at 15:30 GMT today there is nothing on the US economic calendar, though as we have witnessed yesterday, oil inventories can have a considerable influence on the USD value. Given the increasing demand due to the colder weather in the northeastern US, a drop in business oil inventories can refuel a dollar sell-off.
The EUR bulls finally had a day of grace with the EUR surging higher yesterday on the back of a weak dollar and some hawkish comments from the European Central Bank monetary policy committee member Bini-Smaghi, who referred to the excessive liquidity and its bad influence on inflation. Implying on what his vote in the next ECB monetary policy meeting will be, Mr. Bini-Smaghi renewed markets’ expectations for a March rate hike.
Also supportive for the EUR, The New Industrial Orders data that was released yesterday beat expectations of 1.1% at 1.4%. The numbers came as a surprise after soft data for the Q4′s.
There are no releases scheduled from the EZ today, which would probably help the currency to rebase around its current 1.30 level.
Meanwhile in the UK, the GBP/USD established a fresh 14-year peak at 1.9916 despite a weaker than expected CBI industrial trends report. The GBP strengthening came after some analysts said British interest rates seem more likely to rise in the upcoming months. The GBP did not manage to hold on to its gains as BoE Governor King spilled some cold water on these expectations saying the bank is in no hurry to raise rates again, and that its surprising rate increase two weeks ago was a preventative measure that would help the bank to avoid raising rates much further and at a faster rate. His utterances sent the cable back to the 1.98 level again. At 9:30 GMT today we are expecting the Minutes from the last BoE monetary policy meeting to confirm or rebut expectations for additional rate hikes by the BoE, currently standing on 0.5% by July.
The JPY fell to record lows against the EUR on Wednesday after comments by Bank of Japan Governor Fukui enlarging the doubt as to whether the central bank would raise interest rates next month. The JPY was also hitting lows against the USD and GBP.
Fukui told Reuters in an interview on Tuesday that higher rates could ultimately benefit the Japanese economy but that the BOJ would rather stay on the side of caution as long as data is mixed.
Analyasis Curtesy of Forexyard.com