The U.S. Dollar remained strong against the majority of its peers as investors await the outcome of Greek debt negotiations. According to analysts, despite the greenback’s gains toward the end of last week, the currency will remain vulnerable to market sentiment and investor perception of the Euro-zone debt crisis. Friday’s reports out of the U.S. indicated a slight decline in Existing Home Sales but the 4.61 m figures were strong enough to support the claim that the housing market is on the path to recovery. This week’s focus will be on the FOMC’s meeting scheduled for the 24th. As it will be the first such meeting this year, the Fed is expected to offer its forecast on inflation, GDP and unemployment. In the meantime, the Canadian Dollar slipped against the U.S. currency thereby breaking its four-day winning streak on reports showing that annual inflation slowed more than anticipated. This dampened the likelihood of an increase in interest rates. The Loonie slumped versus the majority of its peers on speculation that the Bank of Canada will leave the borrowing costs unchanged while the crisis in the Euro region rages on.
The Euro traded close to the $1.3000 psychological level, but its rally stalled out as market participants kept a close watch on the Greek debt talks. Today will be another important day in the Euro region as Finance Ministers gather to discuss the latest draft of fiscal rules designed to fight the budget deficits. This recent draft emphasizes Mario Draghi’s call for the member nations to “honor their commitment” to more discipline in spending. The Finance Ministers will also discuss drafting a separate accord for the permanent rescue fund in order to ease the provisions established for debt restructuring. The British Pound strengthened versus the U.S. Dollar on data revealing an expected hike in Retail Sales. This week will also be crucial for the Sterling as GDP will be reported, and economists believe this indicator will determine the actions the Bank of England will take.
The Japanese Yen erased some of its gains on Friday as investors grew concerned and returned to safe havens. Japan’s currency failed to recover as the Bank of Japan purchased less JGB’s than it had promised to do, which in turn fueled concerns the country is still in a state of deflation.
Lastly, the Australian and New Zealand Dollars advanced versus the U.S. currency as debt sales out of Europe produced positive results and prompted demand for high yield assets.
EUR/USD- Euro Stalls
The shared currency concluded its rally and later weakened against the U.S. Dollar on disappointing German Producer Price Inflation metrics. Meanwhile, investors kept their eye on the Greek debt negotiations. According to officials, although the talks entered into a third day, there were signs they were reaching an accord with creditors. If the agreement goes through, Greece will erase 100 billion Euros from its 360 billion Euro debt.
GBP/USD- Hopeful Market Benefits Pound
The British Pound climbed to a two-week high versus the U.S. Dollar on hopes Greece will reach an accord with its creditors to avoid default. The Sterling also benefitted from positive U.S. data which showed that the housing market is recovering. In the U.K., economic releases indicated that Retail Sales rose in December by 0.6 percent. The news came after Thursday’s data which pointed to a decline in Consumer Price Inflation. And although investors will remain focused on the Greek debt talks, the market will pay attention to the GDP reports to be released out of the U.S. and the U.K.
AUD/USD- Aussie Rallies
The Australian Dollar rallied to a more than two-month high versus the greenback after the release of better than predicted import price metrics. According to reports, Import Prices increased 2.5 percent following a flat print in the previous quarter. The Aussie erased losses it had sustained on Thursday when economic announcements showed a hike in unemployment.
USD/JPY- Yen Erases Losses
The Japanese Yen trimmed some of its previous losses versus the greenback as concerns over the Greek debt negotiations caused investors to seek refuge. According to analysts, worries that the country may still be in a deflationary period failed to affect the currency market. On the data front, figures denoted a decline in the All Industry Index by -1.1 percent; however, other metrics revealed a hike of the Leading Index to 93.2, while the Coincident Index remained at 90.3.
Today’s economic calendar is light. It shows that Canada will release data on the Leading Indicators. Japan will report the central bank’s Interest Rate Decision. The E.U. will issue French Business Survey and Spanish Trade Balance. And the markets will keep an eye on the meeting scheduled between E.U. Finance Ministers.