US Dollar Weakens as Prospects for a Rate Hike Diminishes (page 2 of 2)

House prices according to the Hometrack index grew by 0.7 percent, which was the fastest pace of growth since May 2004. Any optimism however was offset by the comments from Bank of England member Blanchflower. Like the typical dove, he expects inflation to fall over the next few months and even dip below the central bank's 2 percent target in the next one or two years. Unfortunately for British pound traders, both inflation and housing is important to the BoE. The lack of clarity on which dynamic is having a more dominant impact on the economy should keep the Bank of England on hold for the time being. Looking ahead, mortgage approvals are the only piece of data on the UK calendar tomorrow. No major disappointments are expected there.

Japanese Yen

The Japanese Yen was stronger across the board today thanks to hawkish comments from Cabinet Secretary Shiozaki who said that prices are "picking up." He also indicated that the improvement in the output gap reported last time was a welcome development. For the first time in 10 years, the output gap rose by 0.6 percent. Now that the Bank of Japan has already raised rates, it is hardly surprising that the market has shrugged off the dissenting votes in favor of a rate hike at the January meeting (rates were left unchanged at the time). Any signs of strength will certainly fuel speculation for further rate hikes by the Bank of Japan. The Japanese Yen could also receive boost from year end repatriation over the next few weeks. Corporate profitability has been exceptionally strong which could lead to sizeable repatriation ahead of the March 31st fiscal year end.

Commodity Currencies (CAD, AUD, NZD)

The Australian and New Zealand dollars are stronger today thanks to the continued rebound in gold prices. The Canadian dollar failed to benefit however as the rally in oil prices is becoming exhaustive. There was no Canadian or Australian data released today. The Canadian stock market hit a fresh record high, but traders completely shrugged that off. New Zealand reported a wider trade deficit and weaker business confidence. A one time aircraft order boosted the import balance, but export growth was also weaker than expected. Australian new home sales and New Zealand money supply are the only pieces of data due from the commodity bloc tonight.