The Japanese yen and the Swiss franc are benefitting the most from safe haven purchases. The two currencies are strengthening as investors gear up for a showdown between the G7 and Russia over this weekend’s Crimea referendum. News that China’s corporate default rate is getting ready to pick up and could disrupt the financial system there and weaken the growth outlook is also spooking investors; and just to make sure there is enough risk aversion out there the FOMC will hold their policy meeting next week. The FOMC is expected to continue its tapering of Quantitative Easing. The dollar jumped when European Central Bank’s Draghi comments collided with US economic data. Draghi said that he was monitoring the euro and the impact its strength is having on price stability.
Euro
Exactly as expected, comments from ECB’s Draghi collided with US data to trigger a bout of profit taking that sent the euro tumbling. Draghi said that the euro’s current strength is making it hard for the central bank to disregard its impact on price stability. This more dovish tone brings the head of the central bank in line with comments heard earlier in the week from other ECB officials. The comments came late in the day when the dollar had already seen a shift higher on the back of strong consumer demand data. Currency markets will be driven by developments in Crimea and China. Risk appetite is off and it would not be surprising to see the euro take back the losses.
US dollar
Retail sales rose in February above forecast, which was remarkable because severe weather conditions did not seem to stand in the way of purchases. Weekly jobless claims dropped to a 3-month low. Positive economic data lent support to the dollar triggering a bout of profit taking in short dollar.
Sterling
The Pound took back some of its losses against the euro, but was unable to hold onto gains against the US dollar. UK trade data could divert a bit of attention, but generally the pound should follow euro/dollar developments, and stay within recent ranges against the euro.