US Dollar
The US dollar was higher against the majors today, retracing some losses on yesterday run up to the Federal Reserve announcement. Subsequently, the thin schedule lent little for further greenback strength, with the market simply referring to the week’s initial jobless claims and the leading indicators report. For the month, the leading index dropped 0.5 compared to consensus estimates of a 0.4 drop. Surprisingly pessimistic, the index also printed a revised 0.3 percent lower mark for the previous month. Notably choppy activity riddled the report, which showed jobless claims and consumer expectations dip alongside building permits. However, with the consumer goods orders component lending some support, one can claim that consumer spending continues to remain a pillar of stability for the world’s largest economy. Initial jobless claims actually improved on the week, helping to stabilize the rather overlooked index survey. With nothing but existing home sales scheduled for tomorrow, dollar proponents will be looking forward to next week’s testimony by Federal Reserve Chairman Ben Bernanke. Aside from what is scheduled, including durable goods and consumer sentiment, the testimony should shake dollar markets up as it comes just a week after the Federal Open Market Committee meeting. According to the Joint Economic Committee Chairman Sen. Charles Schumer, the Federal Reserve policy maker will answer questions regarding the subprime mortgage market and growth/inflation.

Euro
Other than positive new industrial orders data countering Euro zone trade balance deficits, traders took to comments issued by the European Commission in driving the euro lower. According to the report released earlier in the session, the commission warned against rate increases by the European Central Bank as growth is expected to slow sharply on the heels of further hikes. “The ongoing tightening of monetary policy could lead to a sharper then expected slowdown of investment growth” according to the survey. However, the commission did concede and recognize that inflationary pressures are likely to increase on the backs of wage hikes and higher oil prices even in the light of a lower rate of productivity. The notion counters what ECB President Trichet has been purporting in the last couple of months, a higher rate of inflation as growth remains historically robust. Although not likely to curtail any further rate hikes that are expected by the market, the report does confirm what some have been professing since the beginning of the year. Subsequently, the news has restrained any further gains in the euro as the currency spot has topped out just above the 1.3400. Looking ahead, figures remain light with traders only privy to the German import price index and French consumer spending figures for the month of February.

British Pound
The release of UK retail sales sparked a surge in the British Pound to the 1.9700 level early this morning as the figure hit the tape at a much stronger-than-expected 1.4 percent for the month of February – a one year high. Additionally, the January release was revised slightly higher to -1.5 percent from -1.8 percent, boosting the already-optimistic nature of the report. Meanwhile, the headline CBI Industrial Trends figure rocketed to a twelve year high of +8 as price expectations jumped, directly countering BOE dissenter David Blanchflower’s vote to cut rates in light of a surprisingly tepid January CPI report (which was subsequently followed by a unexpectedly hot results in February). In the end, with the UK consumer spending at a steady clip, the manufacturing sector finally making a comeback, and price pressures failing to ease, the tilt of the BOE will likely remain hawkish . However, with rates in the UK and US at parity, the GBPUSD pair could be subject to major bouts of volatility as the markets weigh the odds of which country will tighten or loosen monetary policy first.

Japanese Yen
Not even a surge in the Japanese trade surplus to 979.6B from -1.9B could save the Yen today, as the Business Sentiment Indicator for the manufacturing sector plummeted to a reading of 0.1 from 7.1. Meanwhile, the reading for BSI All Industries surprisingly slipped to 6.2 from 6.4 against estimates of a rise to 6.5. The reports bode particularly ill for the Bank of Japan’s Tankan Q1 survey – a known market mover – which is scheduled to be released on April 2. Shifts in the results of the Tankan survey have closely followed that of the BSI Large Manufacturing figure since June 2004, and the upcoming release is unlikely to deviate as Japanese companies start to worry that exports will lag amidst slowing demand. A disappointing Tankan figure could bring about further weakness for the Yen and erase nearly all of the gains made during the unwinding of carry trades witnessed just a few weeks ago. Without the help of the profitable and optimistic corporations who have funneled money into the economy via massive amounts of business investments, the economy will be forced to depend on the fickle Japanese consumer for economic expansion. As a result, the BoJ will have little impetus to continue normalizing rates this year as tightening of monetary policy could increase recessionary risks dramatically.

Commodity Currencies
The comm dollars were a mixed bunch today as the high-yielding New Zealand dollar was the sole survivor and beneficiary of a rise in the NZDJPY cross. On the flip side, a completely empty economic calendar left the Australian dollar and Canadian dollar at the whim of the greenback. However, the price action of the respective pairs were minimal compared to that of the majors, as rallies in commodities kept Aussie and Loonie supported. Crude oil jumped to more than $61/bbl as a decline in US gasoline stocks fueled concerns of tight supplies ahead of the summer driving season. Meanwhile, gold received a boost from the rise in energy prices, as traders moved to the safe-haven asset and drove it to a three-week high of $644.20/oz. Gold also benefited from Wednesday's US Federal Reserve comments indicating a more neutral monetary policy bias.

Kathy Lien is the Chief Currency Strategist at FXCM.