The U.S. Dollar weakened against most of its peers following remarks by the European Central Bank’s President, Mario Draghi, indicating that regional leaders are willing to do whatever is necessary to preserve the Euro. The greenback remained low as risk appetite ebbed after a release from the Department of Labor revealed that the number of individuals who filed for Initial Unemployment benefits declined by 35,000 to a seasonally adjusted 353,00 for the week which ended July 21st, surpassing the previously forecast drop of 8,000. Furthermore, the U.S. National Association of Realtors indicated that Pending Home Sales slipped to the downside by 1.2 percent in June after analysts had predicted a 0.2 percent increase. The U.S. Census Bureau announced that New Home Sales declined by 8.4 percent. Other reports confirmed that U.S. Durable Goods Orders gained 1.6 percent, exceeding the expected climb of 0.4 percent. The data also suggested that Core Durable Goods, excluding transportation related items, dipped 1.1 percent. The metrics raised speculation that the Federal Reserve may go ahead with additional easing measures. Positive comments by ECB President Mario Draghi prompted a higher demand for risk assets, thereby causing the Canadian Dollar to rally to a two-month high versus the greenback. Mr. Draghi stated that policy makers will take whatever action is necessary to preserve the 17-nation currency.
The Euro strengthened the most in close to one month versus the U.S. Dollar when European Central Bank President Draghi reiterated commitment towards the preservation of the shared currency. Mr. Draghi also suggested the ECB could intervene to cut the Spanish and Italian bond yields. The Euro remained strong as a string of economic reports out of the U.S. raised expectations for additional easing measures by the Federal Reserve. Optimism spurred by Mr. Draghi’s comments affected the British Pound, causing it to trade at the highest price versus the U.S. Dollar since December of 2010. The Sterling rose against the majority of its peers following the above mentioned comments by the ECB’s President, and was benefitted by lackluster economic data out of the U.S. which spiked predictions the Federal Reserve will implement further measures to bolster growth.
The Yen remained steady versus the U.S. Dollar as risk appetite dominated sentiment in the market following positive remarks from ECB President Draghi. Disappointing Home Sales figures out of the U.S. sparked speculation the Fed may implement another round of quantitative easing to stimulate the sluggish economy. The Yen remained under pressure on the possibility the Bank of Japan may intervene at any time to lower the currency’s value; however, it recouped some of its losses as market investors grew weary on indications the Euro-zone’s bailout fund may not receive a banking license after all.
Lastly, the South Pacific currencies continued to rally versus the greenback in anticipation of the economic reports which were forecast to show a slowdown in the U.S. economy. The Kiwi rose against all of its peers subsequent to news the Reserve Bank of New Zealand left the interest rate unchanged.
EUR/USD- Fund May Not Get Banking License
Despite optimism over the fact that policy makers have pledged to do whatever it takes to preserve the Euro, market investors remained cautious on indications the region’s stability fund may not be issued a banking license. ECB President Draghi announced that policy makers may unveil new measures aimed at stemming the debt crisis, as bailouts for both Spain and Italy have become a threat to the rescue fund. Yields on 10-year Spanish bonds declined to 6.93 percent after having reached a record 7.75 percent. On the data front, reports showed that loans to the private sector and businesses in the E.U. dropped for a second consecutive month. German GFK Consumer Confidence went up to 5.9, while the Import Price Index dipped by -1.5 percent MoM. The Euro region’s M3 Money Supply climbed by 3.0 percent over the last three months, surpassing prior forecasts.
GBP/USD- Pound Rises Most Since 2010
The British Pound gained the most against the U.S. Dollar since the end of 2010 on hopes policy makers will make every effort possible to stem the debt crisis, a factor that has improved the outlook for the economy in the U.K. The British currency rallied versus most of its counterparts after ECB President Draghi suggested officials may intervene in the bond markets to reduce the borrowing costs. In the days to come, investors will pay close attention to another meeting between the Bank of England’s officials. It’s the first meeting after they increased the asset purchases by 50 billion Pounds. The Pound’s gains were limited as the currency was weighed down by previous GDP reports showing a drop in growth.
USD/JPY- Risk Appetite Rebounds
The Yen declined as risk appetite returned to the market on a positive outlook for the Euro region. On the data front, it’s predicted that later reports will confirm Japan continues to experience a severe deflation, a factor that may lead to further monetary easing. Meanwhile, a release showed that the Corporate Services Price Index declined -0.3 percent rather than the anticipated 0%. Analysts predict that CPI will drop and this may support the possibility for more easing.
NZD/USD- RBNZ Leaves Rates Unchanged
New Zealand’s Dollar rose to a three-day high versus the greenback after the Reserve Bank of New Zealand left the costs of borrowing money unchanged. The currency was also supported by an increase in speculation that the Federal Reserve may implement further easing to bolster growth. In an expected move, the RBNZ announced that the interest rates would remain at 2.50% citing the nation’s poor economic outlook as the main reason. The Kiwi rallied against the Euro, though gains were limited after risk appetite was dampened somewhat, on news the Euro region’s bailout fund may not be granted a banking license.
Today’s economic calendar shows that the U.S. will report on GDP and the Michigan Consumer Sentiment. Out of the E.U. Germany will issued data on CPI. Lastly, Canada will announce its Budget Balance.