The U.S. Dollar strengthened against the majority of its counterparts a day after the release of the Federal Reserve’s policy meeting Minutes managed to disappoint those expecting further easing. The greenback gained against all of the majors, except the Yen, as South Korea surprised market investors by cutting borrowing costs for the first time in three years. On the data front, official reports indicated that U.S. Initial Jobless Claims fell by 26,000 to 350,000 in the week which ended on July 7th. Improvement in the labor sector was dampened by market difficulties caused by the traditional July auto industry shutdown. However, the figures marked the lowest number of claims since spring of 2008. Signs of a slowdown in global growth tempered demand for currencies from commodity exporting countries like Canada, which in turn caused the Canadian Dollar to decline against the U.S. Dollar and the Yen. The Loonie traded at the lowest price this month versus the greenback following the release of government metrics showing that Canada’s New Home Price Index gained 0.3 percent in May. The Canadian Dollar managed to pare earlier losses after crude oil and stocks rebounded from earlier lows. Crude oil for August delivery reached $85.14 a barrel on the New York Mercantile Exchange.
The Euro declined dramatically, especially as the European Central Bank reported a major fall in in deposits since announcing a cut in the overnight deposit rate. It appears that the bank’s goals for improving credit flow has failed with regional banks are sitting on their cash reserves and unwilling to issue loans. The shared currency dipped below $1.2200 as sentiment remained fragile while Italy’s yields began to increase despite a successful bond auction. The Euro continued to spiral to the downside after the ECB’s monthly bulleting stated that the downside risks everyone worried about have actually come to fruition, and growth in the Euro-zone will remain subdued. Not even positive economic news out of China was able to change the mood in the market. The British Pound weakened further against the U.S. Dollar and fell to the lowest price in five weeks on fears the Euro region’s debt crisis will hurt all efforts to pull the U.K. out of its double-dip recession. The British currency found support early in the day when borrowing costs dipped to a record low at a sale where 10-year government bonds were auctioned off.
The Yen rallied close to a six-week high versus the 17-nation currency and advanced against the remainder of its peers on signs that growth is slowing down for most of the world’s economies. The Bank of Japan implemented further quantitative easing, though it did so cautiously, and left the interest rate between zero and 0.1 percent.
The Australian Dollar plummeted after official data indicated that the number of unemployed people in the country increased by 27,000, erasing revised gains of 27,800 jobs for the month of May. Other releases confirmed that the Unemployment level climbed to 5.2 percent, as analysts anticipated. And lastly, New Zealand’s Dollar traded at a two-week low as the Minutes of the Federal Reserve’s recent policy meeting disappointed investors and prompted the greenback to trade higher.
EUR/USD- Euro Slips Below $1.2200
Sentiment towards the Euro has certainly remained fragile; and aside from slightly better than anticipated data on Industrial Production, analysts don’t understand what exactly soured appeal for the Euro. Many believe that the release of China’s economic reports may have been the catalyst for the drop of the currency’s value. According to government reports, China’s FX Reserves dipped lower than expected in the month of June. Economists believe the news is troublesome for the Euro bloc since it indicates that growth is slowing down in China. But more importantly, analysts say that reserve diversification has been beneficial for the Euro in the last few years. With the release of the news, support for the currency may begin to falter even further. On the data front, Industrial Production in the E.U. climbed for the first time in three months by 0.6 percent after strategists predicted a 0.1 percent drop. Furthermore, French CPI declined in line with forecasts to 1.9 percent; the E.U. Harmonized CPI gained by 2.3 percent, and Germany’s Wholesale Price Index contracted YoY as it rose a mere 1.1 percent.
GBP/USD- All Efforts May Be For Nothing
The British Pound fell to a five-week low versus the U.S. Dollar on continued worries over global growth. Sentiment towards risk assets came under pressure after the European Central Bank issued its monthly report wherein it indicated that deposits have dropped dramatically since it cut the overnight deposit interest rate. The Sterling remained weak on concerns that all efforts to pull the country out of the recession will be fruitless, given the ongoing crisis in the Euro-zone and the slowdown in global growth. The currency slipped following a release by Price-Waterhouse Coopers LLP stating that English businesses should brace for the likelihood of a “prolonged recession” if the crisis in the E.U. lingers on. The Sterling was also weighed down by data out of the U.S., which showed a drop in Jobless Claims, and by information released by the Office of Budgetary Responsibility, which suggested the U.K.’s national debt may climb to unsustainable levels if budget levels remain unchanged.
USD/JPY- Global Growth Concerns Boost Yen
Japan’s currency gained over 1.0 percent against some of the majors after the Bank of Japan expanded its asset purchase program by 50 trillion Yen. Many analysts feel this was an unusual form of easing since it then removed an equal amount of fixed rate loans, thus not really implementing true stimulus. Analysts expect that today’s economic releases out of China may send ripples through the market and prompt the Japanese currency to rise. The Yen slipped briefly against the U.S. Dollar after the BOJ left the interest rate unchanged.
AUD/USD- Unemployment Up
The Australian Dollar weakened after dismal employment reports showed that payrolls declined by 27,000 in June after economists predicted an increase. Other figures issued by the Melbourne Institute indicated that inflation forecasts increased to 3.3 percent for July which is above the Reserve Bank of Australia’s 2-3 percent target. The Aussie had gained the day before after the Minutes of the Federal Reserve’s last policy meeting showed that a few policy makers believed further easing was necessary to bolster growth in the U.S.
Today’s economic calendar shows that Japan will issue Industrial Production and the Bank of Japan will release its monthly report. Switzerland will announce PPI. And the U.S. will publish Core PPI, PPI (MoM and YoY), and the Michigan Consumer Sentiment.