The U.S. Dollar traded mixed as the Chairman of the Federal Reserve, Ben Bernanke, concluded his semi-annual speech before Congress. Chairman Bernanke indicated that the central bank is considering implementing a number of measures, should the sluggish job sector or the economy in general require a boost. Policy makers have discussed the use of tools such as additional purchases of mortgage-backed securities and Treasuries as possible measures. Chairman Bernanke also released the Beige Book which confirmed that the economy has grown at a “modest to moderate” pace due to a drop in Retail Sales and Manufacturing in many parts of the United States. The U.S. currency strengthened on continued worries over the crisis in the Euro region and also declined as Chairman Bernanke left the door open for further easing. On the data front, Housing Starts increased in June by 760,000, surpassing expectations for a hike of 745,000. However, Building Permits dropped by 29,000 when a lesser fall had been forecast. The Canadian Dollar rose versus the Euro following an increase in U.S. stocks and commodities like crude oil. The Loonie erased prior losses versus its American counterpart subsequent to the release of the Bank of Canada’s monetary policy report, which showed that investments by the private and business sectors would lead to mild economic expansion through 2014 as demand for the country’s exports could slip.
The Euro was hit by more bad news and comments by the International Monetary Fund warning that the Euro region crisis has reached a critical stage. The IMF urged the ECB to implement further stimulus in order to avoid a potential collapse. The Euro was also weighed down by stern comments by the German Chancellor, Angela Merkel, who indicated that the “European Project” needs much more work in order for it to succeed. Greek politicians continued to quarrel over spending cuts, destabilizing the outlook for the new government. The British Pound weakened against the U.S. Dollar and the shared currency as Minutes from the Bank of England’s recent policy meeting revealed that all of the members agreed to keep the current interest rate unchanged and voted 7-2 to augment monetary easing by 50 billion Pounds. According to the report, the BOE considers that the ongoing crisis in the Euro-zone is affecting domestic growth. In Switzerland, a release confirmed that the ZEW Index OF Economic Sentiment gained modestly in July, prompting the Franc to advance versus the Euro.
The Yen rallied as uncertainty over the situation in the E.U. prompted flight from risk. The Bank of Japan released the policy meeting Minutes which didn’t show any major changes from the previous Minutes and therefore had a minor effect on the Japanese currency. The document highlighted the dangers the country’s economy faces as a result of a slowdown in global growth and the crisis in the Euro region. During the meeting, policy makers reiterated their resolve to overcome the country’s deflation.
Lastly, the South Pacific currencies advanced against the U.S. Dollar as market investors sought high-yield assets soon after U.S. stocks climbed and the price of several commodities like crude oil and copper increased. Australia’s Dollar traded close to a two-week high versus the greenback on speculations the Federal Reserve may opt for further monetary easing. The Aussie currency remained strong as the nation’s Leading Economic Indicator climbed to the highest level in almost one year. Demand for the New Zealand Dollar dipped after the Fonterra Cooperative Group Ltd. announced that whole milk rates dropped for a second consecutive auction.
EUR/USD- Chancellor’s Comments Weigh On EUR
The Euro declined after the release of bad news indicating that Greece’s new coalition government failed to agree on where to make the required 11.5 bn in cuts. The shared currency came under pressure after German Chancellor Merkel stated she wasn’t sure the European Project would work. The Euro declined further after strong Housing data out of the U.S. lifted the American currency. Meanwhile, Germany auctioned over 4 billion Euros of two-year government bonds at negative yields, suggesting investors are fearful about the ongoing crisis in the Euro-zone. On the data front, Construction Output rose to 0.1 percent from -3.7 percent in April. YoY it declined from -6.3 to -8.4 percent. Italian Current Account contracted slightly.
GBP/USD- BOE May Raise Rates
The British Pound pared losses against the greenback following the release of better than forecast U.S. Housing data. But the Sterling slumped versus the U.S. currency as the Minutes of the Bank of England’s policy meeting showed that the members’ decision to increase stimulus came as a result of concerns over the crisis in the Euro region. On the data front, the U.K.’s Unemployment rate dropped to 8.1 percent in June as the upcoming London Olympics have helped the job sector. However, the number of people who filed for Unemployment Benefits rose by 6,100 in June, exceeding the anticipated 5,000 increase. The Average Weekly Earnings Excluding Bonuses stayed at 1.8 percent while the Earnings which included Bonuses advanced to 1.5 percent.
USD/JPY- BOJ Publishes Its Minutes
The Yen rallied versus the U.S. Dollar after Fed Chairman Bernanke offered a dovish outlook of the U.S. economy as he concluded his testimony before Congress. In his statements to the Senate Banking Committee Mr. Bernanke indicated that the economy’s momentum had cooled and the job sector was improving at a “frustrating” pace. The Yen remained unchanged as the BOJ released the Minutes from the recent policy meeting. On the data front, Machine Tool Orders declined again by -15.5 percent; however, Tokyo Condominium Sales increased by 16.4 percent YoY.
USD/CAD- CAD Gains As Crude Oil Climbs
The Canadian Dollar appreciated against the U.S. currency and the Euro after crude oil gained the most since May. The Bank of Canada released the Minutes of the last monetary policy meeting. These revealed that the bank reduced the growth forecast for 2012 while reiterating that interest rate increases are still a possibility. The bank announced on Tuesday that the rate will remain at 1 percent for now.
Today’s economic calendar shows that the U.K. will report on Retail Sales MoM and YoY. The U.S. will release data on Initial and Continuing Jobless Claims, Exiting Homes Sales, and the Philadelphia Fed Manufacturing Index. Lastly, Canada will issue the Wholesale Sales.