In the U.S., economic reports showed that international demand for financial assets declined during the month of December on optimism that the Euro-zone would solve its debt crisis. Other data revealed that manufacturing in the New York region rose at the quickest pace since June 2010. However, metrics showed that industrial production remained flat during the first month of the year. A Fed release revealed that factory output went up 0.7 percent, thereby keeping manufacturing at the forefront of the country’s recovery. The U.S. Dollar advanced against most of its peers following news that the E.U. is delaying a decision on the Greek bailout payment. Furthermore, publication of the Federal Reserve’s minutes revealed that many of the Fed’s officials were in favor of additional asset purchases, a revelation that caused the U.S. currency to pare gains versus the Euro. Meanwhile, the Canadian Dollar dropped from a weeklong high against its American counterpart as investors continue to speculate on whether the bailout package for Greece will be delayed until after April when elections are due to be held. The Loonie strengthened early in the day after crude oil, its biggest export, rose to $102.54 a barrel, which marks the highest price since January 12th.
The Euro declined against the Yen as Greek Finance Minister, Evangelos Venizelos, suggested that many of the E.U. nations are hoping Greece will withdraw from the Euro-zone. The Euro remained under pressure after a release indicated that the region’s gross domestic product contracted by a seasonally adjusted 0.3 percent in the last quarter of 2011. However, sentiment was buoyed as China announced that it intends to assist the E.U. since it believes the debt crisis can be solved through systems such as the European Financial Stability Facility. The British Pound rose against the U.S. Dollar and traded at the highest level versus the Euro on speculation the 130 bn Euro aid package won’t be delivered to Greece until after the elections take place. The Sterling dipped against high-risk assets like the South Pacific currencies and erased gains versus the U.S. Dollar after the Bank of England commented on the weakness of the British economy as new reports indicated that jobless claims increased more than expected.
The Yen gained against the greenback on rumors that the Federal Reserve may soon implement another bout of quantitative easing. According to analysts, this may reduce demand for the U.S. monetary unit. The Yen slipped during the first part of the trading session as the central bank reported its plans to increase the size of the asset-buying program by 10 trillion Yen.
Lastly, the Australian and New Zealand Dollars gained against the majority of their counterparts after China signaled that it plans to help the Euro region stem the debt crisis.
EUR/USD- Regional GDP Declines
Yesterday’s reports showed that the Euro-zone’s GDP contracted during the fourth quarter of 2011 and slowed down across the region on an annual basis. Other data revealed that the German economy shrank by a seasonally adjusted 0.2 percent, which was less than anticipated. In the meantime, investors grew concerned as the E.U. Finance Ministers cancelled their meeting with Greek leaders after not receiving the necessary assurances on how the Greek government plans to implement the recently approved stringent austerity measures. The shared currency managed to erase some of its losses after China indicated its intentions to help the Euro region stem the debt crisis.
GBP/USD- Pound Erases Gains
The Pound trimmed earlier gains against the U.S. Dollar on renewed concerns over the possibility of a Greek default, which dampened demand for risk assets. Risk appetite tapered off after Reuters reported that the Finance Ministers were looking to delay the Greek bailout package on worries that Greek leaders aren’t fully committed to implementing stringent austerity measures. The Bank of England increased its inflation prediction to a 1.8 percent, lessening the likelihood it will implement further quantitative easing. However, the Sterling was weighed down by comments made by the bank’s Governor, Mervyn King, who suggested the country’s growth may fluctuate between expansion and contraction in the coming year; he also reminded everyone that the Euro region debt crisis remains the biggest threat to the economy. Later reports revealed that unemployment claims climbed higher than anticipated in January, but the rate of unemployment stayed at 8.4 percent.
USD/CAD- Loonie Slips To Parity
Canada’s Dollar declined for the first time in one week against the greenback on speculation that the 130 bn Euro aid package for Greece will be delayed until after Greek elections in April. The Loonie continued to decline as the Greek Finance Minister, Evangelos Venizelos, suggested the richer E.U. countries may be thinking of expelling Greece from the Euro region. The Canadian monetary unit fell against the U.S. Dollar from a weeklong high on reports showing that industrial production in the U.S. rose in January.
NZD/USD- China And Retail Sales Boost Kiwi
The New Zealand Dollar advanced to a one-week high against the greenback after the governor of China’s central bank, Zhou Xiaochuan, stated that the Euro region might be able to stem the debt crisis with tools like the European Financial Stability Facility. He went on to say that he fully supports the decisions made by the European Central Bank and that China intends to come to the E.U.’s aid. The Kiwi rallied higher after reports showed a better than forecast increase in retail sales. The figures came in a 2.2 percent, rather than the 1.3 expected. The Kiwi also advanced versus the Yen.
Today’s economic calendar shows that the E.U. will release the monthly ECB report. The U.S. will report on Continuing and Initial Jobless Claims, Housing Starts, Building Permits, Core PPI, Foreign Securities Purchases and the Philadelphia Fed Manufacturing Index. Canada will issue data on Manufacturing Sales. And Japan will publish the Minutes from the last Monetary Policy Meeting.