The U.S. Dollar weakened as market investors speculated on whether Federal Reserve Chairman Ben Bernanke would take further action in order to improve economic growth. However, the greenback gained later on when Chairman Bernanke testified before congress but refrained from mentioning specifics about stimulus, thereby reducing expectations for another round of quantitative easing. On the data front, reports showed that CPI remained unchanged in the month of June with a reading of 1.7 percent YoY, while CPI, which excludes food and energy costs, revealed a decline of one basis point. In addition, Industrial Production advanced by 0.4 percent, which was above the 0.3 percent economists anticipated. Demand for U.S. Securities was much higher as investors sought refuge from the debt crisis in the Euro region. According to the Net Long-Term TIC flows climbed and rose to a surplus of $101.7 bn. The Canadian Dollar traded at a one-week high versus its American counterpart after the Bank of Canada left the costs of borrowing money at 1 percent but suggested that future interest rate increases remain a possibility even if the economy slows down.
The Euro weakened subsequent to Chairman Bernanke’s testimony before Congress during which he gave no signs of further monetary easing. The shared currency plummeted after it gained in the first part of the day when yields on short-term Spanish bonds declined at auction time. However, yields for 10-year bonds remained close to the dangerous 7 percent threshold. To make matters worse, Germany reported another drop in economic sentiment due to the ongoing crisis in the Euro-zone. The British Pound slumped from a two-week high against the U.S. Dollar after a release confirmed that inflation in the U.K. slowed unexpectedly, thereby increasing the likelihood the Bank of England would take additional measures to fuel economic growth. The Sterling dipped against the greenback after Fed Chairman Bernanke spoke to the Senate but did not digress from his “wait-and-see” attitude. The British currency rose against the Euro after Italy’s Prime Minister, Mario Monti, spoke of the economic troubles Sicily is now facing.
The Yen weakened against all of its counterparts as demand for risk assets increased and stock prices climbed. Japan’s currency fell for the first time in four days versus the greenback after the country’s Finance Minister, Jun Azumi, suggested that the Yen’s advances resulted from over speculation. He stated that officials are ready to intervene if necessary.
The Australian Dollar rose for the third consecutive day against the greenback following the release of the Minutes of the Reserve Bank of Australia’s most recent policy meeting. The Minutes indicated that consumption is up due to improvements in the job sector and that policy makers aren’t considering any further rate cuts for now. The New Zealand Dollar also traded higher in anticipation of Chairman Bernanke’s testimony before Congress.
EUR/USD- German Economic Sentiment Drops
In the Euro region, official data indicated that German economic sentiment declined for the third month in a row as worries over the Euro-zone’s crisis continued to weigh on sentiment. According to the ZEW Center for Economic Research, sentiment deteriorated down to -19.6 in July after it posted at -16.9 in June. Analysts say the decline isn’t as bad as forecast. Furthermore, the German Currency Situation survey dropped to 21.1. The Euro hit a session low after Federal Chairman Bernanke spoke to the Senate, thereby reducing the possibility of further Q.E.
GBP/USD- U.K. Inflation Slows Down
The British Pound declined against the U.S. Dollar on the release of weaker than anticipated inflationary metrics which increased the likelihood the Bank of England may introduce further stimuli to bolster economic growth. The data indicated that CPI fell to 2.4 percent in June YoY rather than the 2.8 percent economists predicted. Core CPI dipped to 2.1 percent instead of the anticipated hike of 4 base points. CPI slipped by 0.4 percent MoM as opposed to the forecast -0.1 percent. In addition, RPI went down to 2.8 percent. The Sterling weakened further against the greenback after Mr. Bernanke delivered dovish comments on the U.S. economy to the Senate but refrained from confirming the possibility of further quantitative easing.
USD/CAD- Carney Talks About Rate Hikes
The Canadian Dollar gained against its American counterpart after the Bank of Canada left the interest rate at 1 percent, but indicated that future increases are likely. Governor Mark Carney stated that the country’s economic growth will be dampened by lower global demand for its exports. On the data front, Canadian Factory Sales slipped for the fourth time in five months as many refineries have shut down temporarily. According to official reports issued by Statistics Canada in Ottawa, Sales fell 0.4 percent.
AUD/USD- Minutes Released
The Australian Dollar rallied for a third consecutive day versus the U.S. currency after the country’s central bank published the Minutes of the July 3rd policy meeting. These suggested that policy makers believe the nation’s economy has gained momentum and there’s therefore no need for any adjustments of the interest rate at this time. The Aussie Dollar traded close to an eight day high versus the greenback and close to a record high against the 17-nation currency.
Today’s economic calendar shows that the U.K. will release the MPC Meeting Minutes, the Average Earnings Index , Claimant Count Change and Unemployment Rate. The U.S. will report on Housing Starts, the Beige Book, Building Permits and the conclusion of testimony by Federal Reserve Chairman Bernanke before Congress. Canada will issue the BOC Monetary Policy Report. And Australia will publish data on the NAB Quarterly Business Confidence.