The U.S. Dollar rallied against the majority of its counterparts as risk appetite ebbed after European Central Bank’s President, Mario Draghi, disappointed market investors who expected the ECB to implement much needed measures to manage the debt crisis. On the data front, U.S. Unemployment benefits increased slightly for the week which ended on July 28 providing some encouragement that the job sector is slowly improving. According to the official metrics, Initial Jobless Claims rose by 8,000 to 365,000 and Continuing Claims declined by 19,000 to 3,272.000 for the week concluding July 21, 2012. Other releases confirmed that Factory Orders slipped by half a percent even though they had been forecast to make gains lot losses; and ISM New York went up to 55.2 from 49.7. Investors expect today’s Non-Farm Payrolls to show an increase of 100,000. The Canadian Dollar rose to a record high versus the shared currency after the European Central Bank refused to undertake further monetary stimulus. The Loonie gained against most of its peers and hardly changed against the greenback after ECB President Draghi indicated that the central bank would join other governments in purchasing bonds in an effort to prevent Spanish and Italian borrowing costs from climbing.
And while the markets expected good news, the European Central Bank delivered a speech that triggered a high demand for safety. ECB President Draghi indicated that the bank may purchase bonds despite opposition from the German Bundesbank. However, Mr. Draghi failed to offer specifics on how and when this would take place. His other statements disappointed investors who predicted the ECB would implement new measures to control the debt crisis. The British Pound advanced against the Euro after the U.K.’s Monetary Policy Committee announced it would leave the asset-purchasing program at 375 billion Pounds and interest rates at a record 0.5 percent. The Sterling slipped versus the U.S. Dollar as risk appetite came under pressure following the ECB press conference. The Swiss Franc traded slightly higher against the U.S. Dollar as market sentiment improved briefly subsequent to a successful Spanish bond auction. However, the Franc dipped on ECB comments regarding bond purchasing.
The Yen rate hardly changed in anticipation of the ECB policy meeting but then slipped following disappointing reports out of the Euro region.
The Australian Dollar fluctuated slightly as risk appetite was dampened by news the European Central Bank won’t increase stimuli to bolster growth. It gained early in the day when reports on Retail Sales and Trade showed improvement. The New Zealand Dollar advanced against all of the majors except the Yen on a release revealing that milk powder prices for October delivery went up 4.5 percent.
EUR/USD- ECB Disappoints Markets
The Euro weakened against the U.S. Dollar and the Yen after the ECB President failed to deliver what market investors expected: sufficient signs the central bank will take bold action to manage the debt crisis. The 17-nation currency continued to weaken against all of its peers as Mr. Draghi suggested this will depend on whether the individual E.U. governments experience problems in the bond markets or in activating the bailout fund. Spain auctioned 3.13 Billion Euros in government bonds; analysts say demand was weak and borrowing costs were high. The yields dropped to 6.63 percent before they climbed back up to 7 percent. Lastly, the ECB left the benchmark interest rate at 0.75 percent as predicted by economists. And on the data front, the region’s Producer Price Index fell from 1.9 to 1.8 percent.
GBP/USD- BOE Holds Interest Rate
The British Pound gained against the U.S. Dollar and pared its drop versus the Euro after the Bank of England refrained from cutting the interest rate, leaving it at 0.5 percent. The BOE also announced there would be no changes to the asset purchase program. The Sterling declined against the greenback as the ECB delivered news that prompted flight from risk appetite. On the data front, the U.K.’s Construction sector grew in the month of July. Figures showed that the Markit/CIPS Construction Purchasing Manager’s Index rose from 48.2 to 50.9. The data followed another release issued the previous day which showed Manufacturing shrunk at the quickest pace in over three years. According to analysts, the contraction in Manufacturing supports speculations the BOE may consider further easing in the months to come.
USD/CAD- Loonie Rallies On ECB Comments
The Canadian Dollar was little changed against the U.S. currency after the European Central Bank’s President delivered a speech wherein he suggested the central bank will join other governments to purchase sovereign bonds; he went on to say that the details would be released at a later date. The Loonie rebounded after it dropped versus the greenback following the Federal Reserve’s Policy meeting statements. Analysts expect Canada’s Dollar to gain today when the U.S. releases Non-Farm Payroll data.
AUD/USD- Aussie Rallies
The Australian Dollar advanced after a report released on Retail Sales showed an improvement, suggesting the Reserve Bank may leave the borrowing costs unchanged. According to the recent data, Retail Sales increased 1percent in June; furthermore, the nation sustained a Trade Surplus of $9.4 million in the same month.
Today’s economic calendar shows that the E.U. will report on Retail Sales. The U.S. will issue data on the Average Weekly Hours, Private Non-Farm Payrolls, the Unemployment Rate, Non-Farm Payrolls, the Average Hourly Earnings and the ISM Non-Manufacturing Index.