The U.S. Dollar gained against the majority of its peers as market investors continue to speculate on whether the European Central Bank will purchase bonds in order to stop their yields from climbing. Risk appetite was further dampened after German Chancellor Angela Merkel indicated that she opposes proposals made by the President of the ECB, Mario Draghi, suggesting the ECB buy Spanish and Italian bonds. The economic calendar was light and the only reports issued showed that Dallas Fed Manufacturing dropped -13.2 instead of the expected 2.5, weighing further on the greenback. Demand for the U.S. Dollar was down as investors await the outcome of the Federal Reserve’s two-day meeting which begins today. According to the Fed Chairman, Ben Bernanke, policy makers are looking for ways to bolster economic growth while giving a boost to the labor sector. Investors also await Friday’s Non-Farm Payroll announcement. The Canadian Dollar traded mixed versus its American counterpart in anticipation of today’s reports which are expected to show that Canada’s economy slowed more in May than it did in April. The Loonie traded at the lowest price in close to five months against the Australian currency on speculation that the entire North American economy has cooled, thereby dampening the nation’s prospects for exports.
The Euro declined at the start of the week after Germany expressed its opposition to proposals put forward by ECB President Draghi. This caused a sudden spike in the shared currency. Despite the negative news, the bond markets still advanced and yields continued improving. Spain’s 10-year yields fell to 6.49 percent, though Italy’s rose to 5.67 percent. The Euro weakened against the U.S. Dollar for the first time in four days on speculation the ECB will expand its balance sheet in order to dampen increasing bond yields. The British Pound fell versus the U.S. Dollar following the release of lackluster Housing data and reports which indicated a reduction in the Money Supply as well as a dip in borrowing. These factors may push the Bank of England to implement further quantitative easing.
The Yen rallied as risk appetite took another hit following news revealing that Germany opposes any attempts by the ECB to purchase Italian and Spanish bonds. According to officials, these bond purchases are aimed at stemming high borrowing costs; however, should the move not take place, analysts believe yields will continue to rise. Investors look forward to the Bank of Japan’s rate decision.
Lastly, the Australian Dollar declined after having reached the highest price in four months on speculation the deepening crisis in the Euro region will continue to curb growth. On the date front, sales of New Homes increased for a third consecutive month. And in New Zealand, Building Approvals improved in June.
EUR/USD- Germany Opposes Bond Purchases
The Euro fell against the U.S. Dollar as market investors wonder whether the European Central Bank will buy Italian and Spanish bonds to stop the yields from increasing. However, Germany expressed its opposition to the idea, which came in the form of a proposal by ECB President Draghi when he delivered a speech last week. On the data front, Consumer Confidence declined in the region to 21.5; the Euro-zone’s Business Climate Indicator showed a drop of -1.27 instead of the anticipated -1.09. Furthermore, Euro-zone Industrial Confidence dipped to -15.0 rather than the forecast -14.0; the region’s Economic Confidence plummeted to 87.9 and Services Confidence fell to -8.5.
GBP/USD- Outlook Turns Dovish
The Sterling declined against the U.S. Dollar following the release of weak data which revealed that Mortgage Approvals dropped from 50.5k to 44.2k in the month of May. Borrowing to purchase homes and obtain second mortgages dipped to -0.4 bn. Furthermore, Money Supply slipped to -5.2 percent when it posted at -4.1 percent in June. The Hometrack Housing Survey showed a fall by -0.1 percent though YoY it stayed unchanged. The only positive data confirmed that Consumer Credit increased by 0.6 bn in June. Analysts believe the flurry of lackluster data has increased the possibilities the Bank of England may consider further quantitative easing and it raised the likelihood the British Pound will depreciate.
USD/JPY- Industrial Production Drops
The Yen gained against the U.S. currency as risk appetite declined again on fears over the crisis in the Euro region. On the data front, reports revealed that Industrial Production fell unexpectedly by -0.1 percent when economists predicted it would rise to 1.5 percent. Production of automobiles increased by 20.3 percent though a 59.5 hike had been predicted.
USD/CAD- Loonie Drops Before Report
The Canadian Dollar declined as investors anticipate reports will show that the nation’s economy expanded at a slower pace in the month of May. The Loonie remained little changed while crude oil, its biggest export fluctuated up and down settling at $89.40 a barrel. The greenback continued to gain versus the Canadian currency as investors traded cautiously in anticipation of the Federal Reserve’s policy meeting which starts today.
Today’s economic calendar shows that the E.U. will report on the Unemployment Rate and CPI. The U.S. will release data on the Employment Cost Index, Personal Spending, Chicago PMI and Core PCE Price Index. Canada will announce GDP. Australia will issue the Housing Price Index figures. And China will publish Manufacturing PMI as well as HSBC Manufacturing PMI.