Major Currency Pairs Analysis: February 23, 2012

General Motors Co. and PSA Peugeot Citroen are in talks to form a broad partnership as the two automakers struggle with declining car sales in Europe.The alliance may include developing engines and building vehicles together in the region. Peugeot rose the most in almost three years.GM, the world’s largest carmaker, is looking for ways to turn around its unprofitable Opel brand, while Peugeot is seeking to stem a growing debt load. Peugeot’s 2011 sales in the region plunged 8.8 percent to 1.68 million vehicles. GM’s dropped 1.9 percent to 1.17 million. Auto executives expect deliveries in the region to shrink in 2012 for a fifth year. Peugeot shares gained 1.74 Euros, or 12 percent, to 16.13 Euros as of the close of trading in Paris. The stock has slumped 44 percent over the last 12 months, bringing its market value to 3.77 billion Euros ($5 billion). GM fell 1.9 percent to $26.55 at the close in New York.

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GBP/USD

The pound declined, dropping to a 10-week low versus the euro, after minutes of this month’s Bank of England meeting showed two policy makers wanted a larger increase in asset purchases than the amount finally agreed. Sterling fell against all but one of its 16 major peers and gilts gained as the minutes revealed Adam Posen and David Miles voted for a 75 billion-pound ($117.6 billion) boost in quantitative easing, instead of the 50 billion pounds supported by the other seven policy makers. Gilts also rose before a report this week forecast to confirm the U.K. economy contracted in the fourth quarter, boosting demand for safer assets. Sterling declined 0.7 percent to 84.49 pence per euro in London after falling to 84.57 pence, the weakest level since Dec. 13. The U.K. currency slid 0.6 percent to $1.5678, and was little changed at 125.88 yen. Posen and Miles voted for the additional stimulus because of the considerable margin of spare capacity remaining in the economy and the extent of deleveraging still likely to be required. They also saw a risk of a prolonged period of depressed demand causing inflation to fall materially below the central bank’s 2 percent target.

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USD/JPY

Japanese stock futures were unchanged as technical indicators signaled shares have been overbought, while the yen’s drop to a seven-month low against the dollar buoyed the earnings outlook for exporters. Australian equities slipped. American depositary receipts of Toyota Motor Corp., Asia’s No. 1 carmaker, advanced 0.1 percent from the closing share price in Tokyo. Shares of Mazda Motor Corp., Japan’s least profitable major carmaker, may be active as it plans to raise as much as 232.8 billion yen ($2.9 billion) after forecasting its largest annual loss in 11 years. Futures on Japan’s Nikkei 225 Stock Average expiring in March closed at 9,570 in Chicago previously, unchanged from the level in Osaka, Japan. They were bid in the pre-market at 9,570 in Osaka. Stocks are likely to fluctuate around as the yen’s weakness supports an overheating market. Should the yen fall further, carmakers may lead the market higher.

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USD/CAD

Canada’s dollar slackened through parity with its U.S. counterpart for the first time in four days as risk appetite ebbed and stocks dropped on bets global economic growth may stall. The currencies weakened for a second day on speculation technical indicators are pointing to a stronger U.S. dollar versus its major peers. Global and U.S. stocks fell. Risk-seeking sentiment has been pared back in recent days, which is likely holding back some of the higher-beta currencies like the Canadian dollar and Australian dollar. Such currencies tend to rise and fall with equities and commodities. The loonie depreciated 0.3 percent to 99.98 cents per U.S. dollar in Toronto. It touched C$1.0020, the weakest level since Feb. 16, the last time the loonie fell below parity. The Canadian currencies both fell against the majority of their most-traded peers. The Canadian dollar failed to break 99 cents, hence resulted to some profit-taking on long positions referring to bets the Canadian dollar would rise against the greenback. The view seems to be that fundamentally the Canadian dollar should not be much stronger.

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