Higher Confidence in Outlook for US Economy Sees USD Strength

Dollar Lifted by Bernanke’s Relaxed Vibe
EUR: Cyprus a Risk but Focus Shifts to PMIs
GBP: Retail Sales Report Could Drive Further Gains
NZD: Stronger GDP Growth Expected
CAD: Retail Sales Expected to Rebound
AUD: Watch for Chinese Data
JPY: Watch for Urgency from BoJ

While the market continues to digest yesterday’s Budget, it will also have to grapple with today’s retail sales figures for February. Sales have printed below expectations for several months.

Although developments in Cyprus continue to dominate the headlines from the euro area, the ‘flash’ PMI figures for France, Germany and the euro area will also attract scrutiny for signs on the likelihood that the region will return to growth during this year.

The Federal Reserve left monetary policy unchanged but the U.S. dollar received a boost from Fed Chairman Ben Bernanke’s comfort and ease about the outlook for the U.S. economy. While the central bank cut its growth forecast for this year to 2.3%-2.8% vs. prior forecast of 2.3%-3% and said fiscal policy has become somewhat restrictive, Bernanke did not spend much time during his press conference discussing his concerns about the negative impact of the sequester or fiscal policy. Instead, he talked positively about the labour market and the housing sector and said on more than one occasion that they could consider varying the amount of asset purchases.

Lets to be clear – the Federal Reserve is not backing off its Quantitative Easing program, they still plan to continue buying bonds and feel that the risks associated with QE are manageable for the time being but they may change the amount they purchase month to month depending on how economic data fares. He sounded pleased with all of the recent improvements in the economy but said they are looking for sustained improvements. The Fed Chairman’s apparent lack of concern about the negative implications of the sequester and potential budget showdown suggests that the recovery is strong enough to withstand the hiccups that they can cause. He also saw nothing wrong with the rally in equities, which means he is green lighting the move. As for Cyprus, he doesn’t expect the country’s problems to have a major impact on the U.S. economy. In other words, Bernanke is optimistic and investors are taking this well. Jobless claims, the Philadelphia Fed Survey, Existing home sales and Leading Indicators are due for release tomorrow. Minor improvements are expected in most reports which would reinforce Bernanke’s positive view and potentially help the dollar.

The US sees ‘flash’ manufacturing PMI, initial jobless claims, existing home sales and Philadelphia Fed survey figures released today. All are expected to line up with the recent strengthening of the US economy.

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