The U.S. Dollar traded weak as several data reports spurred risk appetite in the markets. Risk aversion tapered off towards the finalization of successful bond auctions in Italy and Spain, and continued to decline after announcements from the European Central Bank and the Bank of England. The greenback traded low across the board including against the Japanese Yen and the Franc, on reports indicating that Retail Sales were lower than expected. Data showed that Retail Sales only rose by 0.1 percent, and the Labor Department showed that the weekly initial jobless claims climbed to 399,000 but did not rise above 400,000. Forex reports also showed that the Canadian Dollar erased earlier gains as economic releases revealed that U.S. Retail Sales increased less than anticipated.
In the Euro-zone, a statement by the president of the European Central Bank, Mario Draghi, indicating that policy makers had prevented a serious credit contraction caused the Euro to trade at a one-week high against the U.S. Dollar. Furthermore, reports showed that Spain was successful in its government bond auction and sold twice its target amount. Italy also managed to sell 12 billion Euros worth of bills at a rate of 2.735 percent. The shared currency continued to extend gains as Draghi announced that there were signs of stabilization, although the economy faces “substantial downside risks.” The ECB announced it would not make changes to the current interest rate and would leave it at 1 percent. Other news revealed that the Swiss Franc strengthened against the majority of its counterparts on predictions that the Swiss National Bank may apply measures to cap the currency’s gains. The British Pound traded somewhat lower than the U.S. Dollar as weaker than forecast data dampened demand for high yield currencies. The metrics were issued after the Bank of England announced it would maintain interest rates at 0.5 percent, which is where they’ve been since March of 2009.
The Japanese Yen declined as the country’s Finance Minister, Jun Azumi, signaled that he is ready to implement necessary measures to weaken the Yen.
Lastly, the Australian Dollar retreated from prior highs after U.S. data showed that Retail Sales climbed, though less than predicted. The Aussie had advanced on news that China’s inflation rate slowed down and this fueled speculation that China may utilize a number of measures to boost growth. The New Zealand Dollar erased gains from earlier in the day.
EUR/USD- ECB Cites Stability
The Euro traded at a one-week high following an announcement by ECB President Draghi indicating that E.U. leaders have averted a credit shortage and the region seems to be stabilizing. The currency also benefitted from better than predicted bond auctions; Spain sold close to 10 billion Euros. On the data front, E.U. Industrial Production slipped by less than expected, declining -0.1 percent MoM in November; French Current Account deficit contracted to -2.3 billion; and German CPI came in line with expectations at 2.1 percent YoY.
GBP/USD- Economy Deteriorates
The Sterling dipped to a two-month low against the U.S. Dollar as data showed the economy continued to deteriorate. According to metrics, Industrial Production fell -0.6 percent while Manufacturing Production slumped -0.6 percent YoY. Meanwhile, the Bank of England left interest rates unchanged at 0.5 percent and made no changes to its asset purchase program. The Sterling fell further against the Euro after ECB President Draghi said he was seeing signs of stability in the region. Analysts believe the BoE will still implement additional quantitative easing to boost the economy, and speculations of this taking place pushed the Pound into a seven week low against the shared currency.
USD/CHF- Franc Higher Than All Its Peers
The Swiss Franc traded high against the majority of its peers as investors sought refuge in anticipation of the Spanish bond auction. Analysts believe that while the central bank may intervene yet again to weaken the currency, investors are taking advantage of the turmoil that led to Philipp Hildebrand’s resignation.
AUD/USD- U.S. Data Affects Aussie
The Australian Dollar fell against the U.S. currency on news that the country’s Retail Sales rose at a lower percentage than forecast. The Aussie currency slipped further after the U.S. Department of Labor reported that unemployment increased by 24,000 to 399,000 in the week that ended on January 7th. China, Australia’s biggest trading partner, issued data showing that consumer prices climbed 4.1 percent from the previous year and this prompted the currency’s earlier gains.
Today’s economic calendar shows that the E.U. will report on Trade Balance. The U.K. will announce PPI Output and Input. The U.S. will issued data on the Trade Balance, the Import Price Index, Michigan Inflation Expectations and the Michigan Consumer Sentiment Index. Lastly, Canada will report on the Trade Balance.