The U.S. Dollar fell against all of its peers after the outcome of the E.U. two-day summit was positive, thereby bolstering risk appetite in the currency market. The greenback remained under pressure as economic data revealed that Core Personal Consumption fell to 1.8 percent YoY in May, just as economists anticipated. Other figures revealed that Personal Income remained unchanged and Personal Spending slipped. According to a Nielsen Survey, Consumer Confidence slumped in the second quarter of 2012 on worries over the nation’s economy and job security. The Canadian Dollar advanced versus its American counterpart on optimism that the Euro region is inching closer to resolving the crisis, now in its third year. The Loonie sustained the biggest increase since November on reports indicating that Euro-zone leaders agreed to relax repayment conditions for the emergency loans to Spain’s banks.
The Euro rebounded versus the U.S. Dollar following the finalization of the Brussels summit during which leaders agreed on measures that eased concerns the banking system could collapse. The agreement also raised speculation that leaders are closer to solving the crisis. According to official reports, after two days of talks, the summit’s participants agreed to create a joint supervisory plan for the area’s banks; once created, it will allow for direct funding by the ESM and the EFSF to the banks without having to involve any of the member nations. The second measure agreed upon calls for the use of 120 bn Euros for growth projects. And the last measure did away with a requirement that gives governments priority status as creditors on any emergency loans to Spanish banks. Following the announcement of the deal, the European Union’s President, Herman Von Rompuy, called the outcome “a breakthrough.” The British Pound gained more than 1 percent against the U.S. Dollar as the release of good news out of the Euro region sparked a risk rally. And while investors shied away from safe havens, the Swiss Franc dropped to a five-week low versus the 17-nation currency.
The Yen also weakened against most of the high risk currencies following the announcement of a positive outcome at the end of the Brussels summit.
Lastly, the Australian and New Zealand Dollars gained versus the greenback on signs that E.U. leaders have taken the right steps towards stemming the debt crisis. The Aussie rallied to a two-month high versus the U.S. Dollar following news that the Euro-zone plans to use bailout funds to assist the troubled banks without increasing the national debt. The reports showed that the region’s leaders also plan to use the funds to buy government debt in an effort to maintain borrowing costs down.
EUR/USD- New Deal May Stem Crisis
The Euro traded at a six-day high versus the U.S. Dollar on Friday, as news that the E.U. leaders reached an agreement on ways to stem the debt crisis improved sentiment in the market. This also created higher demand for the shared currency. The Euro rallied dramatically following a report indicating that the region’s leaders agreed to use bailout funds to provide assistance to the struggling banks. The release also stated that the summit’s participants reached a consensus to create a joint supervisory entity for the area’s banks. Following the news, Spanish 10-year bond yields retreated back to 6.32 percent, while Italian 10-year bond yields dropped below 6 percent. On the data front, preliminary figures showed that Consumer Price Inflation increased 2.4 percent in June and German Retail Sales slipped 0.3 percent when economists only expected a 0.2 percent drop. In the days to come, investors will focus on the European Central Bank’s policy meeting. Analysts suspect the bank may cut the interest rate.
GBP/USD- Pound Rallies On Sentiment
Reports showing that the two-day E.U. summit produced a positive outcome raised risk appetite, boosting the value of the British Pound. In the U.K., a release revealed that the country’s economy shrank by 0.3 percent in the initial quarter of the year, reinforcing speculations the Bank of England may implement further easing to bolster economic growth. According to the Index of Service which measures the Services sector activities, there was a 2 percent hike in April of 2012 as compared to April of 2011. However, if compared month on month, there was no change. This week, investors will pay close attention to Purchasing Manager indices and the BOE’s rate decision.
USD/JPY- Yen Declines Versus Risk Currencies
The Yen declined against high risk currencies following Friday’s announcement indicating the Euro-zone’s leaders reached an agreement that may help stem the debt crisis. On the economic front, Manufacturing PMI dropped to 49.9 suggesting the country’s economy has contracted. Household Spending increased by 4.0 percent in May, despite that a 2.5 percent drop had been forecast. The Unemployment Rate declined from April’s 4.6 percent to 4.4 percent; CPI, which doesn’t include food or fuel prices dipped -0.6 percent; and May’s CPI climbed by 0.1 percent falling in line with predictions. Lastly, Industrial Production advanced by 6.2 percent in the month of May. According to economists, the dip in inflation and as well as in Manufacturing are still strong reasons for the BOJ to implement further stimulus.
AUD/USD- Aussie Rallies Versus Greenback
The Australian dollar gained against the U.S. currency as market sentiment veered towards risk appetite following the release of what appears to be good news for the Euro-region. The Aussie rallied to a two-month high as Euro-zone leaders agreed on the recapitalization of Spanish banks with bailout funds; the currency continued to climb as it was also announced that the E.U. would buy government debt in an effort to keep borrowing costs low. On the data front, the Reserve Bank of Australia reported that the Private Sector’s Credit increased 0.5 percent in the month of June. The Aussie surged versus most of its peers after the E.U.’s President Herman Von Rompuy called the outcome of the summit “a breakthrough.”
Today’s economic calendar shows that Switzerland will report on Retail Sales and SVME PMI. The E.U. will issue data on Manufacturing PMI and the Unemployment Rate. The British Pound will also release Manufacturing PMI. The U.S. will publish figures on the ISM Manufacturing Index. And Australia will announce Building Approvals.