By ForexMansion.com

The Dollar Gains Traction Against the Yen

The euro is flat against the dollar and up on the crosses, particularly against the Swiss franc.  Last week’s agreement about the ESM was already changed at today’s EU summit. Total capital remains unchanged, but capital is contributed more slowly, now over five years instead of three. 

Today’s changes to the terms of the bailout package are due to domestic political considerations, as the bailout fund is unpopular in those countries contributing capital.  Merkel’s CDU is facing key regional elections this weekend and Finland is seeing the rise of the populist euro skeptic party True Finns ahead of its April 17 parliamentary elections. 

Political developments can further complicate already difficult negotiations over pending EU issues such as renegotiating the terms to Ireland’s bailout, the status of debt holders, the terms of a possible Greek restructuring, and a Portuguese bailout package. 

The yen is weaker on the day, reaching its weakest level since the intervention, near 81.40.  February CPI data was near expectations, with the national year over year rate at 0.0%, and department store sales were better than expected.  

Data from the Japanese Finance Ministry showed that purchase of foreign assets by domestic investors, including bonds and notes, exceeded sales by JPY291 billion from Mach 13 to 19. In other words, Japanese investors were not, on net, repatriating capital after the earthquake. This supports our view that the sharp price action observed in yen was driven primarily by speculative accounts.

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In the US, Gross domestic product, the value of all the goods and services produced in an economy, rose at a rate of 3.1% in the fourth quarter according to the Commerce Department.  Economists surveyed had expected GDP to be revised up to a 3.0% growth rate in the government’s third estimate for the final three months of last year. In its previous estimate, the government said GDP rose 2.8%.

U.S. companies’ after-tax profits, which were released for the first time and aren’t adjusted for inflation, fell by 3.3% to $1.369 trillion, following the third quarter’s gain of 2.4%. But the top-line figure rose in the fourth quarter to an annual rate of $1.678 trillion, the highest on record.