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Asian Session – Dollar keeps most gains after previous day’s strong rally

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nyse-feb-28-2012Following very strong performance the previous day, the US dollar managed to cling on to most of its gains during the beginning of the last trading day of the month.  Euro / dollar was trading around the 1.12 area, following a dip to as low as 1.1182 in early Asian trading.  Dollar / yen managed to climb to 119.50 in late US session trading, while profit-taking and some positive Japanese statistics limited the pair’s gains back to around 119.30.

It was not so clear why the dollar rallied so strongly particularly after a relatively dovish Janet Yellen during a 2-day testimony before Congress on Tuesday and Wednesday.  Despite Yellen’s tone, the US economy is doing relatively well and the Fed is still on course to raise interest rates before the end of the year.  Furthermore, economic statistics such as core inflation and durable goods orders that were released the previous day helped the dollar, as did regional Fed President James Bullard’s comments about the need for higher interest rates eventually.  End-month position adjustments and the triggering of stop-losses around 1.1270 helped to drive the euro all the way down below 1.12.

A raft of Japanese economic data came in mixed overall, although on balance the indicators seemed to help the yen.  Household spending dropped more than expected in January and unemployment was worse-than-anticipated at 3.6% compared to 3.4% the previous month.  However, industrial production managed to clearly beat estimates by contracting less-than-expected and inflation numbers were in-line or slightly above economists’ consensus.  A speech by Bank of Japan Governor Haruhiko Kuroda did not have significant impact.

Looking ahead, US 4th quarter GDP growth is expected to be revised down to 2.1% from 2.6% announced previously.  Prior to those numbers, German flash inflation estimates could be helpful in gauging the course of inflation in the Eurozone as a whole.  A monetary policy forum held in New York featuring speakers from the Fed and the Bank of Japan could attract attention during the US session well after the London close.

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