The U.S. Dollar weakened against the majority of its trading peers as risk appetite increased in the market on signs the European Central Bank has stepped up efforts to quell the regional debt crisis. There were no major economic reports out of the U.S. yesterday; however, investors await any hints from the Federal Reserve Chairman, Ben Bernanke, regarding further easing. The Canadian Dollar rallied to a three-month high versus its American counterpart as crude oil prices climbed and a gauge for Canadian Business Spending showed a better than anticipated increase. The Loonie benefitted from a rise in risk appetite, which came about after Australia’s central bank officials indicated that China’s growth “won’t slow down” any further.

The Euro advanced as market investors reacted with optimism to news that the International Monetary Fund is pushing the Euro region into continuing with Greece’s bailout in order to lighten its debt burden. The shared currency reached more than a three-week high versus the Yen on speculation the European Central Bank will do what’s needed to manage the region’s sovereign debt crisis. The currency was also supported by a release which showed that Italy’s economy contracted less than forecast. The British Pound trimmed losses versus the U.S. Dollar subsequent to a surprisingly positive Industrial Production release. The Swiss Franc strengthened against the U.S. monetary unit on a report which showed the Swiss National Bank’s foreign currency reserves increased to a record high.

The Yen slipped lower against the U.S. Dollar despite reports that the Bank of Japan plans to refrain from further easing at this time. The Yen declined further as risk appetite improved on the possibility the ECB will soon commence purchasing bonds to prevent the break-up of the E.U. Finance Minister Jen Azumi indicated that the country is planning to extend the USD loan facility until December to deal with the overvalued Yen.

In the South Pacific, the Australian Dollar traded higher than it has in over 4 months after the Reserve Bank of Australia left the benchmark interest unchanged and announced the country’s growth is “close to trend.” The New Zealand Dollar also gained after Asian stocks extended their rally.

EUR/USD- ECB May Prevent Break-Up

After Italy’s Prime Minister, Mario Monti, warned of the possibility the E.U. may break up if nothing is done to lower borrowing costs, the European Central Bank signaled that it may start purchasing government bonds soon. Optimism over the news caused the Euro to trade close to a one-month high versus the U.S. Dollar. However, gains were limited as market investors worried about the effectiveness of the ECB’s plan, especially after a flurry of weak data out of the Euro-zone highlighted the impact the ongoing crisis is having on the individual economies. According to reports, German Factory Orders fell 1.7 percent in June, twice as anticipated; and Italy’s Gross Domestic Product shrunk by 0.7 percent.

GBP/USD- Pound Trims Losses

The Pound managed to erase some of its losses and held against the U.S. Dollar as sentiment improved in the markets on hopes the European Central Bank will be able to control the debt crisis. The Sterling pushed higher against the greenback and the shared currency after government reports revealed that U.K. Industrial Output sustained its biggest monthly decline since November of 2008; however, the metrics were better than forecast. Other news indicated that Manufacturing slumped 2.9 percent in June but the figures were healthier than economists anticipated.

USD/CAD- Loonie Reaches 3-Month High

After a long holiday-weekend, the Canadian Dollar came back stronger, trading at the highest price in three months against the greenback. The Loonie gained against all of its counterparts except the Norwegian Krone following a release which showed that Business Spending rose more than predicted. The Loonie was supported by increased risk appetite and a hike in crude oil. According to the new York Mercantile Exchange, crude oil for September delivery reached $94.42 a barrel, the highest since May 15^th. Analysts believe that investor sentiment has improved due to signs the U.S. economy has improved and on the likelihood the ECB will make its move before long to relieve the pressure of the bond markets. On the data front, the Ivey Purchasing Manager’s Index for July advanced to 62.8, the highest in 4 months; and Building Permits dropped 2.5 percent in June, less than estimated.

AUD/USD- RBA Leaves Rate Unchanged

The Australian Dollar rallied after the Reserve Bank kept the costs of borrowing money at 3.5 percent and indicated that the current policies are “appropriate.” The Aussie traded at a 5-month high versus the greenback after the RBA left the benchmark interest rate unchanged and suggested it’s too early to measure the impact of the past rate cuts. The South Pacific currency also rallied versus the Euro; however its advance was limited as investors believe the currency’s gains have happened too fast.

Today’s Outlook

Today’s economic calendar shows that Switzerland will report on the SECO Consumer Climate. The U.K. will issue the BOE Inflation Report. The E.U. will release German Industrial Production. The U.S. will announce Non-Farm Productivity and Unit Labor Costs. New Zealand and Australia will publish their Unemployment Rate and Changes in Employment. And China will reveal PMI as well as CPI and PPI.

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