Pressure on the Dollar Escalates Ahead of Trade Balance (page 2 of 2)

The current Prime Minister Berlusconi has refused to concede defeat, citing big discrepancies with the tallying of the votes. This feels like déjà vu all over again with the close votes that were later refuted both here in the US a few years ago and then later in Germany between Merkel and Schroeder. We all know that in both scenarios, the officially declared winner, still became the eventual winner. We would be surprised if the Italian elections were any different.

British Pound

The British pound strengthened against both the Euro and US dollar despite weaker trade figures. Even though the trade deficit narrowed to -GBP6.4 billion in the month of February, there was a huge downward revision to the January data from GBP5.7 billion to GBP6.4 billion. The number also came in much weaker than the market expected.

The market however is mostly holding out for tomorrow's UK employment figures. Economic data out of the UK has been very mixed, but employment is always important to watch in hopes of clearing the air on where the UK economy stands. The market expects the number of jobless claims to increase, but less than the previous month's rise and for the unemployment rate to remain unchanged. On the brighter side, earnings are expected to tick higher which should be mildly positive for consumer spending.

Japanese Yen

The Japanese Yen sold off against all of the major currencies except for the US dollar. To the dismay of anyone who may have been hoping for some volatility, the Bank of Japan ended its two day monetary policy decision and delivered nothing new. At the much anticipated press conference held by Fukui, the BoJ Governor repeated that rates can remain low as long as inflation does not move significantly out of line.

He also gave no timing for the end of the country's zero interest rate policy. The central bank's monthly report remained bullish as they noted that household incomes were increasing and that the level of economic activity is rising. Yet overall, there is still nothing new from the central bank and the market will continue to anticipate their inevitable move. Meanwhile, the yen is suffering from the country's heavy reliance on oil imports. With crude prices edging towards its all time highs, Japan's current pace of recovery could be threatened.