Despite risk aversion sentiment dominating the markets yesterday, the U.S. Dollar made gains against most of its peers. This took place while investors focused on the accelerating inflation in China and the actions taken by Moody’s Investors Services on Portugal’s government bonds. China released metrics showing a drop in Service PMI and increased speculations of a hike in interest rates. Out of the Euro region, Moody’s reduced Portugal’s debt rating to junk, which is considered below investment level. The agency also indicated it would impose impairment charges on any banks that rolled over Greek bonds. This obviously caused investors to grow even more concerned about the debt crisis. Meanwhile, Canada’s dollar advanced versus the Euro as crude oil, its biggest export, rose above $97.00 per barrel. Analysts expect the U.S. Dollar to strengthen if employment shows growth. A survey showed that the sector may have increased 100,000 jobs in the month of June.
Meanwhile, the Euro fell for the first time in seven days against the U.S. currency following Moody’s announcements. On the economic front, the Composite PMI Index dipped to 53.3 and Retail Sales slumped more than expected. Furthermore, a news report indicated that German courts held hearings on Germany’s contributions to the Greek bailout further undermined investor sentiment. The outlook for the shared currency remains bleak. However, the Pound Sterling managed to regain some of its value despite negative sentiment reigning in the market. Strategists believe it was due to positive data which improved the perception of the U.K.’s economy. The Purchasing Manager Index went up above expectations and given the atmosphere of risk aversion, the Swiss Franc rallied against all of its counterparts.
The Japanese Yen fell against the U.S. Dollar as the country’s Finance Minister, Yoshihiko Noda, announced they may be running out of money and it would be up to Parliament to pass a bill to sell bonds. The Yen’s future is uncertain and much of the outlook will depend on global factors.
Australia’s Dollar dipped against the U.S. monetary unit as the Reserve Bank of Australia announced it would leave the benchmark rates unchanged for the time being. The New Zealand Dollar on the other hand touched the highest levels on a rebound of Business Confidence.
EUR/USD- Portugal’s Debt Rating Reduced
The Euro was weighed down by actions taken by Moody’s Investors Services. The agency reduced the Portuguese debt rating to junk, thus taking it from Ba2 to two levels below investment grade. The cut came as a result of the agency’s belief that Portugal may require another round of financing before returning to the private sector. The Euro zone’s Composite PMI Index dipped to 53.3 while Retail Sales fell -1.1 percent MoM.
GBP/USD- Pound Recoups Value
The Pound advanced after the release of positive data which boosted investors’ spirits. Metrics showed that the Purchasing Manager Index went up above anticipations to 53.9. There’s now speculation that the BoE may discuss the possibility of another asset purchase plan; however, strategists believe that a move towards stimulus may weigh down further on the Pound. Yesterday’s data may have made the case for another quantitative easing scheme. However, consumers are growing weary about their economy, as the government implemented 6 years of spending cuts. According to reports, no British government has been able to sustain more than two years of such.
USD/JPY- Japan May Run Out Of Money
The Yen fell against the U.S. Dollar as Japan’s Finance Minister, Yoshihiko Noda, announced that the country may be out of money by as soon as October unless a bill is passed allowing bonds to be sold. The currency also weakened versus the Pound. It did make gains versus the Euro given the increased worries over the debt situation in the Euro-zone. Analysts believe that it’s perhaps the interest rate differential what’s benefitting the U.S. Dollar as a refuge currency. However, there are still many investors who worry about the debt downgrade in the U.S. The currency may continue to drop on Thursday as the ECB increases interest rates prompting investors to seek the riskier assets. Metrics revealed a hike in earnings by 1.1 percent bringing back a ray of hope after recent negative data was released.
AUD/USD- RBA Maintains Interest Rates
The Reserve Bank of Australia issued its decision to leave the interest rates at 4.75 percent. The currency weakened against 12 of its peers as the Bank’s Governor, Glenn Stevens, predicted that this year’s economic growth would be slower than last year’s. The high interest rates are however attracting investors to the South Pacific since the rates are at their lowest in Japan and the U.S.
Today’s economic calendar reveals that Japan will report on Leading Index and Core Machinery Orders while the Euro region will issue data on Spain’s Industrial Production, Germany’s Factory Orders and GDP. The U.S. will release MBA Mortgage Applications and ISM Non-Manufacturing Index. Canada will announce stats on its Building Permits and New Zealand will publish news on the GDP. Lastly, Australia will report on the Unemployment Rate as well as Changes in Employment.