What's The Difference Between A Fed Hawk & An ECB Hawk? - The market listens to the ECB hawk as evidence by the Euro's move in overnight trading. The various Fed hawks that have spoken over the last few days were only able to push the Euro down a couple pips but yesterday's comments from ECB member Lorenzo Bini Smaghi was able to rally the Euro over the 1.42 level. Smaghi said that the ECB should introduce a series of gradual rate hikes and this is in the face of Portugal's funding problems and today's Irish bank stress tests, which are expected to signal the effective nationalization of the entire financial system. Also, today's release of eurozone inflation showed a more-than-expected jump of 2.6% in March, strengthening the ECB’s case for increasing interest rates next week for the first time in almost three years. A note of caution, the Euro will probably rally right up to the April 7 rate hike but could sell off there after on a classic buy the rumour sell the fact type move. In Asia, the Yen carry trade is back on as interest rate differentials are causing the Yen to move lower. The Yen is back to being used as a funding currency as ultra loose Japanese monetary and fiscal policy, in order to help the economy in the wake of the earthquake and tsunami, is encouraging players to sell the Yen to fund higher-yielding investments. In Australia, the AUD continued to hit fresh 29-year highs after favourable retail sales and credit growth data. In Canada, the CAD was firm in overnight trading and edged higher this morning after domestic GDP growth in January came in as expected at 0.5%. The CAD should continue to trend higher with the current risk on trade.
Here are the interbank mid-market rates at the time of posting:
EUR/USD 1.4221 USD/CHF 0.9154
GBP/USD 1.6085 USD/CAD 0.9714
AUD/USD 1.0337 EUR/CAD 1.3770
NZD/USD 0.7622 GBP/CAD 1.5575
USD/JPY 82.86 USD/MXN 11.9192
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