The Dollar traded mixed yesterday as Minutes from the last FOMC meeting revealed that policy makers are still debating whether to implement another round of stimulus. Speculation on a QE3 in the event that the economy continues to struggle affected the U.S. Dollar, thereby causing it to drop against the Euro. This occurred despite concerns over the current debt crisis. But the Dollar recouped some of its losses against the Euro as Moody’s Investors Services downgraded Ireland’s debt to junk. On the economic front, reports indicated that the U.S. Trade Deficit widened for the month of May and higher crude oil prices were blamed for the lackluster results. The less than stellar Trade Balance continued to fuel an already negative outlook towards the country’s economy. This contributed to the risk aversion now dominating the markets. Experts believe that the trend may continue, as some believe the U.S. may be the next one to default. This is mostly due to the fact that it has already reached its debt ceiling. Meanwhile, the Canadian Dollar advanced as commodities like crude oil gained in price.
The Euro weakened against most of its counterparts and traded at its lowest price in four months versus the U.S. Dollar as Moody’s Investors Services slashed Ireland’s debt rating to junk. The currency neared its lowest trading price versus the Swiss Franc on speculation that the sovereign debt crisis may reach Italy. Also, recent news revealed that Greece failed to meet target-spending levels, thereby fueling a sell-off of the Euro. In the interim, the region’s finance ministers continue to debate on ways to improve investor confidence and prevent further sell-off of the shared currency. An announcement indicating that they would continue to brainstorm on Friday and that China may buy vast quantities of Euros helped boost the value of the currency somewhat. Other currency trading news showed that the Pound Sterling also fell, primarily as a result of negative data which pointed to a decline in CPI and RPI. The country’s Trade Deficit also expanded, adding to concerns that the British economy is slowing down. If metrics continue to reflect a drop in inflation, the Bank of England may rethink its stance on interest rates.
And the Japanese currency was once again the star of the day, trading higher as a result of risk aversion in the markets. The Yen held on to its gains despite the brief recovery sustained by the Euro, as the Eurogroup announced they would not insist that private bond holders roll over their debt in order to assist Greece financially. The Yen’s increase was also supported by positive stats which revealed a hike in the Domestic Corporate Goods Index and the Tertiary Industry Index.
South Pacific currencies slumped as investors sought monetary units that were not related to economic growth.
EUR/USD- Euro Traded Mixed
The 17-nation currency sustained drastic losses as Moody’s Investors Services cut Ireland’s debt rating to non-investment. A lack of consensus amidst the E.U.’s finance ministers weighed on the currency even further; however, indications that they’re willing to continue discussing ways to boost investor confidence and help Greece with its debt crisis, helped the currency regain some losses. Investors await Friday when the banks will undergo a stress test and the meeting between key finance ministers will take place. Economic reports showed that the Consumer Price Index remained unchanged from the prior month.
GBP/USD- CPI And RPI Drop
Yesterday’s drop in CPI and RPI indicated that inflation has eased in the U.K. Other reports showed that the Retail Price Index fell to 5.0 percent and the Trade Balance indicated an advance in the trade deficit to -4060. These metrics support the decision by the Bank of England not to raise interest rates before the right time. But analysts believe that if further reports like the recent CPI continue to show declines in inflationary tendencies, the BoE may change its stance and proceed with another bout of asset purchases to help the ailing economy. The British Pound recovered later on, as the U.S. Dollar weakened.
USD/JPY- Yen Rallied On Positive Data
The Japanese Yen traded strong again as risk aversion took over the markets. But this was not the only factor that boosted the Yen’s value. Positive metrics revealed that the Domestic Corporate Goods Index went up to 2.5 percent and that the Tertiary Industrial Index surprised everyone by advancing to 0.9 percent.
USD/CAD- Currency Rallied On Commodity Prices
Speculation that the debt woes in the Euro zone may ease up helped boost the value of several commodities such as crude oil. This in turn benefitted the Canadian Dollar. The Loonie rallied versus the Euro following Moody’s announcement to cut Ireland’s debt rating to junk. Canada’s currency was the best performer yesterday, following the Yen and the Swiss Franc.
Today’s economic calendar shows that Japan will issue metrics on Industrial Production and the Bank of Japan will release its monthly report. The U.K. will release Unemployment stats, a Claimant Count Change and the Average Earnings Index. New Zealand will announce GDP and the Business PMI, while the Euro region will announce Industrial Production MoM. The U.S. will have a busy day with reports on MBA Mortgage Applications, the Import Price Index, Crude Oil Inventories and a speech by Federal Reserve Chairman, Ben S. Bernanke.