The U.S. Dollar finished the week in a position of strength as risk appetite dwindled away following the downgrade of Italy’s sovereign debt rating by Moody’s Investors Service. But risk sentiment seemed to find support after China issued economic data revealing a drop in GDP from 8.1 percent YoY to 7.6 percent. According to analysts, GDP declined in line with forecasts and was received as positive news. Out of the U.S., the University of Michigan Consumer Sentiment survey indicated a drop in optimism from 73.2 to 72, which was the biggest decline in seven months. Producer Prices stayed the same and Standard PPI remained at 0.7 percent YoY even though a dip to 0.2 percent had been predicted. In the days to come, market investors will focus on testimony by the Federal Reserve’s Chairman, Ben Bernanke, who may recommend further quantitative easing. The Canadian Dollar rallied against the majority of its peers on the likelihood the world’s major central banks will implement further stimulus to bolster economic growth. The Loonie traded at an all-time high versus the shared currency as a release showed that the European Central Bank is prepared to institute further monetary easing should the crisis in the region take a turn for the worst.
The Euro fell to the lowest weekly price in more than two years against the U.S. Dollar as investors believe the crisis in the Eurozone is deepening. And following Moody’s downgrade of Italy’s credit rating to one notch above junk, market investors speculated that the Italian bond auction would not be a success. However, the shared currency rebounded later in the day as sentiment improved on reports showing the ECB is willing to implement further stimulus, even after having cut the interest rate on July 5th. The 17-nation currency traded low against the South Pacific currencies as traders sold off the Euro in order to purchase high-yield assets. The British Pound rebounded on Friday after the release of Chinese data met expectations. The Sterling remained supported by news that suggested the Bank of England won’t opt for an increase in quantitative easing for now, signaling the central bank may be close to the end of its easing cycle.
The Yen slipped against most of its peers but climbed versus the U.S. Dollar, sustaining the longest winning streak against the greenback in almost 12 months. Many factors, including a better than anticipated Italian bond sale, improved optimism in the market and therefore boosted the value of Japan’s currency. The Yen was supported by reports showing a slight drop in Producer Prices as well as Confidence in the U.S.
Lastly, the South Pacific currencies strengthened, paring weekly losses after China announced the nation’s economy expanded in the second quarter. China’s GDP grew 7.6 percent from the year before according to the Bureau of Statistics in Beijing. The data showed that GDP posted just below forecasts, which was seen as a positive sign.
EUR/USD- Euro Dips To Lowest Level
The Euro hit two-year lows after Moody’s downgraded Italy’s sovereign credit, citing the government’s inability to implement much needed reforms as the main reason. But the 17-nation currency rebounded on Friday, after a successful Italian bond auction eased concerns over the situation in the Euro-zone. However, the shared currency declined despite indications the region’s leaders are doing everything possible to aid the Spanish troubled banks. Furthermore, an Athenian newspaper showed that most of the people polled in Greece would like the Prime Minister to re-negotiate the loan agreement even if it jeopardizes the country’s standing within the Euro currency bloc. On the data front, Italian CPI showed no changes.
GBP/USD- BOE May Not Opt For More QE
The Sterling rallied against the U.S. Dollar following the release of Chinese economic data and received support as sentiment took a hit after Moody’s Investors Service downgraded Italy’s credit rating. Britain’s Pound remained strong after the Bank of England announced a new 80 billion GBP program aimed at improving lending for companies and households, thereby lessening the possibility of further quantitative easing. In the days ahead, investors will focus on CPI as analysts believe the data may further diminish the likelihood of more Q.E.
USD/JPY- Yen Sustains Longest Winning Streak
The Yen rallied for a third consecutive week against the U.S. Dollar as risk appetite improved following a better than predicted Italian bond sale. Risk appetite increased after China reported growth for the second quarter while the Bank of England announced a new program aimed at improving lending. On the data front, Industrial Production showed a 6 percent increase YoY in May versus a 6.2 percent hike in 2011; and Capacity Utilization MoM sustained a marked decline of 2.2 percent. Today, the markets will remain closed in Japan for a national holiday.
USD/CAD- Chinese Data Boosts Sentiment
The Canadian Dollar gained the most in one week against its American counterpart after a report out of China showed that GDP figures posted in line with forecasts. On the economic front, Canada’s New Home Prices gained for a 14th consecutive time in May; the index showed that the higher homes prices can be found in Toronto. However, Canadian Businesses are less optimistic about the future given the outlook for the global economies.
Today’s economic calendar shows that Switzerland will report on Industrial Production. The E.U. will release data on CPI, Core CPI and Trade Balance. The U.S. will announce Retail Sales, Core Retail Sales, and the NY Empire State Manufacturing Index. New Zealand will reveal CPI and Australia will publish the Minutes from the last Monetary Policy Meeting.