US Dollar - The Bernanke effect wore off in the morning hours as the new chairman ended up rounds of questions by politicians on the current state and future of the economy.  Once again nothing new was released other than the incumbent’s efforts to continue the previous chairman’s policy.  However, noted was his evasiveness to direct inquiries on questions about the future course of interest rates.  Noting that the Federal Reserve adheres to no “mechanical rule”, Bernanke added that monetary policy makers will be closely reviewing “all the data, trying to make out the best assessment of the economy.” 

The chairman also called on China to further allow the yuan to trade freely, joining forces with Treasury Secretary John Snow.  On China, when questioned by New York Democrat Charles Schumer, Bernanke replied saying “China ought to move toward a more flexible exchange rate.”  Separately, traders attended to economic data, which ran a full schedule for the U.S. single currency.  Included on the day’s docket were initial jobless claims, housing starts and the awaited Philadelphia Fed Index. 

Against jobless claims that rose less than expected, housing units soared to move closer to a 33-year high.  Soaring to 2.276 million units, the released figure decimated the consensus 2 million forecast and bolsters further growth in the housing sector.  However, taking the cake was the Philadelphia Fed’s gauge of manufacturing activity.  Accelerating to a 15.4 read, the report surpassed expectations of a 9.1 median forecast.  Now with manufacturing back on the up and up, further dollar strength looks to be fortifying till the next Fed meeting in the month of March.

Euro - Nothing but an up tick in new car registrations was released for the Euro eco fan.  For the month of January, new car registrations rose 6.1 percent on an annualized comparison as demand was mostly boosted by the original fifteen EU members. Notably, European carmaker models were preferred to foreign brands as consumers increased purchase quantity, casting aside brands such as Nissan and Honda.  Otherwise, price action remained staid following Bernanke’s testimony this morning and looks to do so till tomorrow’s spate of French economic data and Euro zone industrial production. 

Traders wary of the poor French figures released just a short bit ago are expecting the current account and wage growth to reflect lower output and export activity along with signs of a relatively loose labor market.  Further leading to Euro near term downside, industrial production is expected to decline as well compared to previously released figures.  A compendium of overall production for the member states, the report is expected to be merely a reflection of the downside data in France and Germany, two of the region’s larger economies.  As a result, further rate hikes at the next meeting scheduled for March 2nd remain questionable even as inflation remains looming over the economy.  With previously lofty energy prices being taken aback slightly in recent months, price increases look to very well fall in line with previously tepid inflationary pressures in the United Kingdom, nullifying the need for further rate hikes.

British Pound - Sterling was subject to similar price action that has been witnessed over the past couple of sessions as better than expected housing data offset dour retail sales.  Although some position paring was additionally seen, the clashing reports kept the underlying spot in the relatively 50-pip range that has been experienced over the past three sessions.  According to the Royal Institution of Chartered Surveyors, housing price balances were 9 percent in the positive, rising against the 8 print seen in the previous month.  This is now the third monthly rise since the figure bottomed out in the month of October and coincides with the seventh increase in housing prices according the Nationwide Building Society, the third largest mortgage lender.  As a result, formidable evidence now arises of stabilization in the housing market that may spur growth and expansion in the region from 13-year lows. 

However, lingering weakness in retail sales looks to crimp the positive contributoins of the housing sector.  Retail sales in the United Kingdom plunged 1.3 percent on the month in January as consumers remained hesitant of economic conditions.  This now only bolsters an annualized rise of 1.3 percent and strengthens the possibility that further rate cuts maybe considered by the Bank of England.  Subsequently, the pessimistic retail figures contradicts what the optimistic quarterly inflation report stated yesterday and looks to lend to further pound bearishness in the near term.

Japanese Yen - Japanese yen weakness was felt on the day as further paring and positive U.S. economy data pushed the currency pair higher.  With no economic data to counter the dollar assault, yen bulls are concentrating their expectations on tonight’s gross domestic product report.  Expected to rise by five times the pace seen in the previous report, overall growth in the world’s second largest economy looks to be bolstered by higher wage earnings and climbing consumer sentiment as conditions improve.  Wage growth was seen above at 1.6 percent while overall unemployment was suppressed to a 4.5 percent rate. 

The increased optimism has also lent to increases in capital investment as manufacturers prepare for mounting domestic and foreign demand.  As a result, the previously whispered recovery in the economy looks to be confirmed, lending to a strengthened bias for the yen underlying.  However, near term weakness still remains as interest rates remain a predominant theme, lending to dollar favoritism.  To this end, the morning’s comments by policy board member Kiyohiko Nishimura gave the dollar a temporary leg up.  Nishimura stated to businessmen in the western city of Takamatsu that the central bank will maintain low interest rates in the spirit of bolstering economic growth as output picks up and in light of an incremental up tick in inflationary pressures.   

Kathy Lien