The euro gained ground against the dollar as political leaders in Cyprus prepared to pass legislation to restructure the country’s banking sector and impose capital controls. The European Central Bank said Thursday that it will cut off liquidity to Cypriot banks on Monday if an agreement with the European Union and the International Monetary Fund on an alternative bailout solution is not in place. The EU and the IMF have offered a EUR10 billion bailout loan to Cyprus, but insisted that the country find a way to raise EUR5.8 billion in exchange for financial aid. A previous agreement that included a levy on deposits in Cypriot banks was rejected by the country’s parliament on Tuesday. EUR/USD hit a session high of 1.3009 on Friday before settling at 1.2991.
The cable ended the week higher against the dollar, but trimmed gains after ratings agency Fitch said it would make a decision on whether to downgrade the UK before the end of April, citing the weak outlook for economic growth and high government debt levels. Sterling found support after the annual budget on Wednesday contained a number of measures to drive economic growth. In addition, U.K. Chancellor George Osborne updated the Bank of England’s remit to allow it to use “unconventional monetary instruments” to support the economy but said the bank’s inflation target will remain unchanged. GBP/USD hit a session high of 1.5248 on Friday.
The yen was higher against the dollar for a second day on Friday after a speech by new Bank of Japan Governor Haruhiko Kuroda disappointed expectations for indications that more aggressive easing monetary measures were imminent. USD/JPY fell to session lows of 94.20.
In the week ahead investors will be closely monitoring developments in Cyprus as a failure to reach a deal could see the country exit the euro zone.
Monday, March 25
The UK is to release industry data on mortgage approvals, a leading indicator of demand in the housing market. Later in the day, Federal Reserve Chairman Ben Bernanke is to speak at an event in London; his comments will be closely watched for any indication of the possible future direction of monetary policy. New Zealand is to release official data on the trade balance, the difference in value between imports and exports.
Tuesday, March 26
Reserve Bank of Australia Governor Glenn Stevens is to speak; his comments will be closely watched by investors. In the euro zone, Germany is to produce official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. The UK is to publish a private sector report on retail sales, an important economic indicator. The US is to release a flurry of economic data with government reports on durable goods orders and new home sales as well as a report on consumer confidence.
Wednesday, March 27
New Zealand is to release a report on business confidence, a leading indicator of economic health. Meanwhile, the RBA is to produce its financial stability review, which looks at conditions in the country’s financial system. In Switzerland the KOF Economic Research Agency is to publish its economic barometer, designed to predict the medium term direction of the economy. The UK is to release final data on fourth quarter economic growth and a government report on the country’s current account. The euro zone is to release preliminary data on consumer inflation, which accounts for a majority of overall inflation. In addition, Italy is to hold an auction of 10-year government bonds. Canada is to publish official data on consumer inflation. The US is to produce industry data in pending home sales and a government report on crude oil stockpiles.
Thursday, March 28
Japan is to publish official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. Australia is to release official data on private sector credit. In the euro zone, Germany is to publish official data on the change in the number of people employed. Canada is to publish data on monthly gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health. The US is to release the weekly government report on initial jobless claims and revised data on fourth quarter economic growth.
Friday, March 29
Japan is to release official data in inflation, household spending and industrial production, leading indicators of economic health. Markets in Australia, New Zealand, Germany, Switzerland, the UK and Canada are to remain closed in observance of Good Friday. In Canada, the government is to unveil its annual budget statement. The US is to round up the week with official data on personal spending and expenditure and revised data form the University of Michigan on consumer sentiment and inflation expectations.
EasyForexNews Research Team