The U.S. Dollar traded mixed against its peers as market investors believe the European Central Bank is set to take action in order to quell the debt crisis. The greenback benefitted as risk appetite ebbed following reports out of the Euro region suggesting the debt crisis is spreading to the larger nations in the bloc. And in the U.S., comments by the Boston Federal Reserve President, Eric Rosengren, boosted speculation that the Federal Reserve will implement additional easing measure in order to bolster growth. The Canadian Dollar made little change versus its American counterpart after having traded above parity the day before for the first time since May.
In the Euro-zone, all signs seem to indicate that the crisis has spread to the larger nations. For starters, Germany reported a decline in Industrial Production while Spain’s rating was cut two notches to A Low. Italy’s rating was reduced one level to A and Ireland’s rating remains at A Low, which is four steps from junk. To add to negative sentiment in the market, Greece announced that the Standard & Poor’s lowered its outlook to CCC, 8 levels beneath investment grade, and was categorized as negative rather than stable. The British Pound gained the most in one month versus the shared currency following statements by the Bank of England’s Governor, Mervyn King, indicating that a reduction the cost of borrowing money at this time would be “counterproductive.” The Sterling gained against the majority of its peers after the BOE released the inflation report and Governor King reiterated the bank’s support for the Prime Minister’s budget. The BOE also lowered its outlook for the economy and suggested that recovery will come at a slow pace.
The Yen traded lower against the greenback while the Japanese political parties grappled over the Sales Tax Bill. The news indicated that Prime Minister Yoshihiko Noda was confronted by the Liberal Democratic Party who demanded that a time be set for elections in exchange for the approval of the tax bill. Concerns over the bill prompted the 10-year bonds to reach a one-month high. The currency continued to decline as the Dollar Index gained and the Standard’s & Poor’s Director of Sovereign Ratings warned Japan by saying that the turmoil brought on by a political crisis is also dangerous for the country’s sovereign rating.
In the South Pacific, demand for the two currencies was limited as investors were anticipating that Germany and China would release weak economic reports. The Australian Dollar came close to a four-month high after a release showed that Home Loans Approvals climbed, signaling the economy is strengthening. The New Zealand Dollar fell against all of its counterparts as Prime Minister John Key indicated there may be room for the central bank to cut the interest rate.
EUR/USD- Crisis Spreading To Larger Nations
The Euro declined after preliminary economic reports indicated that Gross Domestic Product fell 0.7 percent. But the big news came from Germany, where data confirmed that Factory Orders dropped more than anticipated in June due to a decline in domestic and foreign demand. This helped reignite fears that the sovereign debt crisis is spreading. According to the official figures, Factory Orders dipped 1.7 percent MoM. Germany’s Industrial Production showed a slump of 0.9 percent in June.
GBP/USD- BOE Lowers Outlook
The British Pound gained against the U.S. Dollar on comments by BOE Governor Mervyn King while market investors remained hopeful the European Central Bank will implement measures to fuel growth. The Bank of England released its quarterly inflation report and suggested that a reduction in the costs of borrowing money is unlikely at this time; Governor King went on to say that a cut in the rates could hurt financial institutions. The BOE also lowered its forecast for the country’s economic growth and stated that it may be close to 2 percent per year rather than the previous prediction of 2.67 percent. On the data front reports showed that the U.K.’s economy shrunk by 0.3 percent in the initial quarter of 2012 and by 0.7 percent in the second quarter.
AUD/USD- Domestic Economy Improves
The Australian Dollar came 0.6 percent close to the highest price it’s traded at in over four months as data indicated that the number of Home Loans granted climbed 1.3 percent in the month of June, following a revised 0.9 percent drop in May. Analysts believe today’s reports will reveal that employers added 10,000 jobs in the last month after they had dropped 27,000 in June, and that the unemployment rate may have risen. Demand for the Aussie was limited as market investors expect China to release weak economic data on Retail Sales.
USD/CHF- Greenback Advances
The U.S. Dollar gained against the Swiss Franc though its advance was limited due to optimism the ECB will take action to ease the sovereign debt crisis. Market sentiment was also supported by the possibility the ECB will do whatever it takes to lower Spanish and Italian borrowing costs. On the data front, The Swiss Secretariat For Economic Affairs reported that the Consumer Confidence Index fell from -8 to -17 for the period from April through July, while economists had predicted it would improve. Following the release, the country’s Finance Minister indicated that the SNB is likely to stabilize the currency whenever it’s necessary.
Today’s economic calendar shows that Japan will release the Interest Rate Decision. China will report on Retail Sales and Industrial Production. The E.U. will publish the ECB’s Monthly Report. The U.K. will issue the Trade Balance. Canada will reveal data on Housing Starts. The U.S. will announce Initial and Continuing Jobless Claims, as well as Trade Balance. And Australia will release the RBA’s Monetary Policy Statement.