US Dollar
The day’s data was overshadowed by a slight lull as markets anticipate the Federal Reserve decision tomorrow. Although the decision is all but priced in, what has to be considered are the subsequent comments following the release. Notably, the market will want to see any suggestions, inferences or answers to the recent mentions of subprime woes. Will Fed policy makers counter or reflect the pessimism that ex-Chairman Greenspan stated late last week of a spillover by subprime concerns? Separately, the day’s economic data couldn’t help the dollar one bit, in light of better than expected February housing starts. Expected to rise by 1.45 million units in the month, housing starts in the US advanced at a 1.525 million rate, helping to alleviate concerns over a slower construction sector slump. Although optimistic, the building permits report helped to curb any enthusiasm. For the month, according to the US Commerce Department, permits fell 2.5 percent to a 1.532 million pace, lower than the 1.55 million set by the consensus. The figure is subsequently even lower by 28.6 percent when considering comparisons to Feburary 2006 estimates. With single family permits down by 3.1 percent, the lowest since December 1997, the overall report confirms the NAHB sentiment survey posted yesterday, that weakness in the construction sector will likely remain in the interim. The notion kept the dollar pressured against the majors in New York as ripple effects will likely be seen in consumer spending and overall growth in the short term.

Euro
Helping the euro to trade lower, initially in the London session, was a disappointing German PPI survey. For the month, although prices rose in line by 0.3 percent, the annualized figure helped to drive the spot lower. The year on year disappointed as it declined to the lowest level in more than two years, rising by 2.8 percent. Lower energy costs helped to push prices lower in the month as prices of petroleum and electricity on the year on year declined. However, reversing the euro’s fortunes were the core prices. For the month, core prices, which exclude energy, advanced 3 percent compared to the previous 2.9 percent. Although not impressive enough to keep central bankers on the look out, the figure may very well spill over into a higher running consumer price report for next month supportive of a euro bias. Consumer prices actually remained at an average of 1.8 percent in the month of February, undermining the ECB’s decision to hike rates by 25 basis points. Also undermining the credibility of the region’s central bank was front runner in the French presidential election, Nicolas Sarkozy. Speaking to a French radio, Sarkozy claimed that ECB President Jean Claude Trichet continues to battle inflationary pressures “that no longer exist” slipping the region’s export industry into a withering lull. Confirming that he is “not the only one in Europe who thinks that”, the interior minister vowed, if elected, to force a change in monetary policy and stop the “deindustrialization of Europe”. The comments come as no surprise as Sarkozy has previously disagreed with Trichet’s take on policy, looking to boost regional growth and strength of the underlying spot. However, in doing so, he may have spelled weakness for the euro as instability is surely to cap any real appreciation in the euro.

British Pound
The sterling was supported by a bout of bidding throughout both London and New York. Helping to maintain the bid tone from the start of the week was the release of the country’s consumer price index. A key gauge in monetary policy decisions, the inflationary suggestion advanced in the month of February, taking the annualized figure higher. In the month over month figure, consumer prices rose 0.3 percent and reversed a 0.8 percent decline in the previous month. Subsequently, annualized figure moved higher to 2.8 percent, as the Retail Price index jumped to a 15-year high. The second fastest pace in a decade, the figure will likely justify another round of rate hikes as it seems that consumer spending and investment have been immune to the last three decisions. Futures are already pricing in the plausible scenario, taking the implied rate higher by almost 5 basis points. The sentiment has also boosted the spot price, advancing through key resistance at the 1.9500 level. Supporting the recent uptick in consumer prices were the costs of household services and food according to the Office for National Statistics. Ultimately, the bid tone is likely to continue capturing the market ahead of hawkish Bank of England minutes.

Japanese Yen
Unsurprisingly, the Bank of Japan left rates at the current 0.5 percent standing, helping to boost the notion of a carry trade resurgence in New York trading. In subsequent comments, BOJ Governor Fukui stated that the unchanged nature of consumer prices make it hard in justifying further rate hikes in the short term. Consumer prices, according to the most recent report, declined on a dip in gasoline and crude oil as core prices failed to advance after climbing 0.1 percent. The sentiment prompted a unanimous vote in keeping the current rate steady at this month’s meeting. In addition, speculation is siding with the likelihood that the country’s central bank will elect to remain on the sidelines ahead of the upcoming elections in July. Nonetheless, the decision helped traders to re-initiate carry trade positions in the market as concerns of a rate hike in Japan dissipated. The notion supported massive moves in Yen cross pairs as the USDJPY major strengthened in the New York morning.

Commodity Currencies
The Canadian dollar ruled the comm currencies today as the Bank of Canada's core CPI measure unexpectedly surged well above the 2.0 percent target to a four year high of 2.4 percent. With the manufacturing sector and domestic demand continuing to support further economic expansion and oil remaining elevated near $60/bbl, price pressures have little hope of letting up. Thus, the probabilities of a BoC rate cut this year have been slashed dramatically as speculation mounts that the central bank could be forced to actually tighten monetary policy. A complete lack of data out of New Zealand and Australia left the country's respective currencies to continue their upward trek with Kiwi holding just above .7050 and Aussie cleanly breaking .8000.

Richard Lee is a Currency Strategist at FXCM.