The U.S. dollar lost ground against the majority of its counterparts after a flurry of weak data brought into question the strength of the country’s economic recovery. The greenback declined after reports showed that manufacturing activity in the Philadelphia area contracted for the fourth consecutive month in August. The Federal Reserve Bank of Philadelphia announced that the Manufacturing Index posted a reading of -7.1 after it came in at -12.9 in July. The release showed that manufacturing activity in New York went into negative territory for the first time since October of last year. Early in the session, the Labor Department stated that the number of people filing for Unemployment benefits rose to 366,000 last week, a higher number than analysts predicted. And in a separate official release the U.S. Commerce Department confirmed that Housing Starts slipped by 1.1 percent in July to a seasonally adjusted 0.746 million. On the positive side, Building Permits rose 6.8 percent in July, which was more than the 1.2 percent forecast. The lackluster data weighed on the U.S. currency and renewed speculation the Federal Reserve may implement further stimulus in order to boost growth. The Canadian Dollar hardly changed versus its American counterpart as less than stellar U.S. economic data reinforced anticipation of additional monetary easing.

The Euro traded higher against the U.S. Dollar on the possibility the European Central Bank may start buying Spanish bonds to prevent its yields from going any higher. News reports indicated that Spain is looking to ask for a full bailout and will soon be receiving an emergency injection of cash for its troubled banks. Though an official request hasn’t been made yet, sentiment remained upbeat. The Euro advanced against all of its peers after German Chancellor Angela Merkel reiterated the fact that she was committed to working with the central bank in order to stem the region’s ongoing crisis. The European session was relatively quiet though the shared currency trimmed gains as reports showed a decline in Consumer Prices. According to analysts, accelerated cuts in the budget, together with an increase in Unemployment, prompted retailers to slash prices to create a higher demand. However, the ECB isn’t too concerned as metrics revealed that CPI climbed to 1.7 percent on an annualized basis. In the U.K. the big story was the dramatic increase in Retail Sales which caused the British Pound to rally versus most majors including the U.S. Dollar.

The Yen fell versus the U.S. monetary unit subsequent to news revealing that U.S. Building Permits reached the highest level in four years. The Yen continued to spiral to the downside as higher yields in the U.S. encouraged Japanese investors to purchase assets overseas. Some analysts believe the mixed releases out of the U.S. don’t signal with certainty that the Federal Reserve will consider another bout of quantitative easing.

In the South Pacific, the two currencies advanced versus the Yen as the rise in commodity prices supported the prospects for advances in exports. The New Zealand Dollar remained strong against most of its peers after the Fonterra Cooperative Group Ltd., which is the biggest dairy exporter in the world, announced that whole milk powder rates rose to a two-month high.

EUR/USD- Euro Rises On Hopes ECB Will Act Soon

The Euro strengthened versus the majority of its peers on speculations the European region’s leaders are working towards stemming the debt crisis and the ECB may begin purchasing Spanish bonds soon. Other reports showed that Spain will officially request aid at the next meeting of Finance Ministers and central bank governors scheduled for September. The Euro surged as the U.S. released lackluster economic data. However, it erased some of those gains as a release indicated that Consumer Price Inflation remained steady at 2.4 percent last month.

GBP/USD- Retail Sales Climb

The British Pound continued to rally against the U.S. Dollar reaching a 2 ½ week high as less than stellar economic reports out of the U.S. increased possibilities the Federal Reserve may opt for further monetary stimulus. The Sterling remained supported as data released yesterday by the Office for National Statistics showed that U.K. Retail Sales increased by 0.3 percent last month while analysts expected a 0.1 percent decline. As a bonus, June’s metrics were revised from 0.1 to 0.8 percent; and while the figures don’t include automobile sales, the second quarter’s GDP may also be revised higher.

USD/JPY- Yen Dips Versus Greenback

The Yen declined against the U.S. Dollar as U.S. yields reached three-month highs, improving the appeal of U.S. Dollar assets. The Yen remained under pressure on speculations the Bank of Japan may implement monetary easing measures in the near future.

NZD/USD- Kiwi Extends Rally

The New Zealand Dollar continued to advance versus the U.S. currency after it slipped early in the day in anticipation of the U.S. economic data. The Kiwi benefitted from a release by Auckland-based Fonterra Cooperative Group, Ltd., who indicated that whole-milk powder for October delivery climbed 7.3 percent. The Kiwi’s gains were limited as China’s Premier, Wen Jiabao, suggested that its inflation rate will allow them to adjust monetary policy.

Today’s Outlook

Today’s economic calendar shows that the E.U. will report on Trade Balance and Current Account. Canada will issue data on CPI and Core CPI. And The U.S. will release the Michigan Consumer Sentiment.

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