Euro and Swiss franc Surge, Yen Weakens

The euro has shot higher, reaching 15 month highs, while the US dollar firms to 6 month highs against the yen.  The main driving for remains interest rates and interest rate expectations.  Strong German manufacturing underscores ECB rate hike inevitablity tomorrow, while the FOMC minutes and recent speeches by Fed leadership clearly indicates Treasury purchases and unconventional easing continues apace.

UK data disappointed.  The 1.3% decline in Feb industrial production raises fears of renewed economic weakness, despite the strong service PMI yesterday.  Short sterling futures are recovering from yesterday's sell-off.   Sterling itself is flattish against the dollar aorund $1.6300, but the strength of the euro means that sterling is suggering on the cross.  It is not about 0.75% off the low we identified yesterday. 

Switzerland reported a higher than expected March inflation.  The 0.6% increase was three times as much as expected and brings the year-over-year rate to 1.0%  Deflation is not much of a threat despite the relative strength of the franc. 

The dollar rose just beyond JPY85.50 and has settled back to the figure as the broader dollar weakness serves as a bit of a drag. 

Portugal raised a bit more than 1 bln euros in 6 and 12 month bill auctions.  The 6 month yield jumped to 5.11% from 2.98% last month and the 12-month yield rose to 5.90%  from 4.33%. 

I expect the euro to continue to work higher and ahead of the ECB meeting afterwards I continue to suspect the market may sell the fact after having bought the rumor.    The BOE won't raise rates tomorrow and, unlike the Fed and ECB, when they don't do anything they don't say anything. 

It is difficult to know how dollar negativity is a function of US budget brinkmanship.  It is not a positive.  It may be distorting the bill market, but not clear in the Treasury market, so for the time being,  it probably is a teritiary factor.