Market investors returned from the holiday break and were quick to placed their positions, thereby raising trading volume again. The U.S. Dollar slid versus the Euro on signs that the manufacturing sector has expanded in the U.S., China and India. According to economic reports, China’s Manufacturing PMI rose above forecasts, from 49.7 to 56, surpassing the level that separates expansion from contraction. Risk appetite took over market sentiment as other releases showed that U.S. ISM Services climbed to 53.9, and Construction Spending MoM rose by 1.2 percent in November. The greenback continued to decline against the majority of its peers as risk appetite increased due to a publication showing that the Manufacturing sector sustained the quickest growth in half a year. Other news showed that the Canadian Dollar traded at its highest level in three weeks as the Manufacturing sector advanced in the U.S. and China. The Loonie extended its advance as commodities climbed and as crude oil, its biggest export, soared to $102.58 a barrel on the New York trading exchange.
The Euro strengthened after better than forecast data improved the outlook for several large world economies. On the data front, Germany issued positive employment figures. The shared currency also benefitted from speculation that Germany may be working on a plan to reduce 75 percent of the Greek debt in order to finance the next bailout package. Meanwhile, Greece announced it will need to receive 130 bn Euros by March or it will be forced to withdraw from the Euro-zone. The British Pound rallied on risk appetite while data revealed a hike in the U.K.’s Manufacturing PMI. This took place despite a decline in Business Confidence as measured by a survey conducted by Lloyd’s Bank. Investors now believe the British economy will contract in the first part of the year, and the Bank of England is likely to institute further quantitative easing.
The Yen’s appreciation was capped by a departure from risk aversion while the European currencies rebounded. However, the Japanese currency gained against the greenback as the demand for refuge declined on better than expected ISM Manufacturing data.
Lastly, the Australian and New Zealand currencies rallied versus the U.S. Dollar and traded at the highest prices since November on news that Manufacturing in the U.S. expanded at the fastest rate in six months. The Kiwi advanced versus most of its peers due to additional reports indicating that China’s Manufacturing Index also increased.
EUR/USD- 17-Nation Currency Rebounds
The Euro came back strongly after stellar data releases eased tensions in the market and increased appetite for risk assets. On the economic front, Germany released its employment data, indicating a drop in the number of unemployed with a decline in the Unemployment rate to 6.8 percent. Chinese Manufacturing metrics also helped the Euro trade higher, especially since the Index showed a hike above the important 50 level. In the bond markets, France’s 10-year bond yields rose to 3.28 percent.
GBP/USD- Manufacturing PMI Increases
The Pound Sterling also benefitted from better than anticipated Manufacturing data; and it rallied further as the U.K.’s Manufacturing PMI showed a hike to 49.6 instead of the 47.3 analysts anticipated. The Bank of England has issued its predictions for 2012, suggesting that the economy will remain stagnant for the first part of the year as exports have dropped due to the turmoil in the Euro region.
USD/JPY- Departure From Safety Caps Yen
The Yen did not appreciate further as risk appetite returned to the market. It did however rise against the greenback as the U.S. Dollar weakened due to the departure from demand for refuge. And despite rumors that Japan will no longer intervene to weaken the Yen for fears of antagonizing the U.S. Analysts believe that if the currency reaches a specificlly high level, the Bank of Japan will not hesitate to intervene once again. According to trading analysts, the Japanese currency may continue to strengthen as the Euro region’s crisis worsens.
USD/CAD- Canadian Dollar May Reach Parity
The Canadian Dollar touched its highest price in three weeks on stellar Manufacturing reports from its biggest trading partner, the U.S., and China. According to analysts, the Loonie may appreciate further and reach parity with the greenback. Canada’s currency received a further boost after reports indicated that the U.S. Factory Index rose to 53.9 percent in November.
Today’s economic calendar shows that the E.U. will release French Consumer Spending MoM, CPI and Services PMI. The U.K. will report on Mortgage Lending, Construction PMI, and M4 Money Supply. The U.S. will release data on MBA Mortgage Applications and Factory Orders. Lastly, Australia will announce its Trade Balance.