The dollar strengthened against its peers today following the release of favorable US consumer price inflation and new home sales data which generated new positive outlook with regard to the state of the economy. US consumer prices were up 0.2% in February matching forecasts following a 0.7% decrease in January. The data revealed that the Fed has some room for stricter monetary policy despite inflation being so far off its target. US new home sales surged 7.8% to a near 7 year high. The initial reading of the US manufacturing purchasing managers’ index increased from a reading of 55.1 in February to 55.3 in March setting a 5 month high.

The euro weakened against the dollar coming off today’s high of 1.1029 as the greenback regained lost ground. The euro had advanced earlier in the session following the release of data from Markit which revealed that its composite purchasing managers’ index jumped to its highest level in 46 months to a reading of 54.1 in March from 53.3 the previous month. Private sector growth in Germany expanded at an 8 month high while France saw a down turn this month.

The pound weakened against the dollar following the release of data which revealed that consumer price inflation wound down to 0.0% in February from 0.3% in January compounding forecasts of 0.1%. Core CPI increased by 1.2% in February from 1.4% in January falling short of expectations of a 1.3% increase.

The yen weakened slightly against the dollar with the pair up just over 0.1% trading in a tight range within its 119 handle. The pair has been at a disadvantage due to a softer dollar and the Fed’s dovish outlook with regards to its interest rate increase. As monetary policy between major central banks continues to differ the yen will continue to ease.

The Australian and New Zealand dollars weakened while the Canadian dollar held its ground against the greenback. The Aussie and kiwi dollars had been pressured by discouraging Chinese manufacturing data. HSBC China flash PMI dropped to its lowest level in 11 months to 49.2 in March from 50.7 in February compounding forecasts of a slip to 50.6. The greenback had come off its 3 week low against the loonie as US inflation data lent support increasing predictions for higher interest rates from the Fed.

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