The U.S. Dollar gained as three major central banks implemented monetary easing measures to help bolster growth. The greenback was also supported by better than anticipated data. For starters, the ADP Employer Services showed that American companies added 176,000 workers in June while analysts had expected a 100,000 decline. Initial applications for Unemployment Benefits fell by 14,000 during the week ending June 30th. However, Continuing Jobless Claims went up 4,000 when a dip of 2,000 had been forecast. Other releases indicated that the Non-Manufacturing sector contracted. According to the official figures, the ISM Index fell from 53.7 to 52.1. The Canadian Dollar traded at a two-year high versus the shared currency following an ECB decision to cut the interest rate to a record 0.75 percent. The Loonie climbed to a seven-week high versus its American counterpart on reports showing the U.S. job sector grew faster than expected and remained strong after the Bank of England announced it would expand its asset purchasing program.
The Euro plummeted to the lowest level in over one month versus the U.S. Dollar following a statement by the European Central Bank announcing its decision to lower the base lending rate to 0.75 percent while reducing the overnight deposit rate to zero for the first time. While most investors expected the bank to cut the interest rate, they didn’t predict that the bank would decide on a reduction of the deposit rate. The Euro remained under pressure as ECB President Mario Draghi stated that some of the risks to the region’s growth outlook “have materialized.” He went on to state that growth remains “weak” and that much uncertainty remains. The 17-nation currency slipped against the British Pound despite the fact that market investors believe the situation in the Euro-zone is far more critical than the challenges faced by the U.K. The Pound weakened against the U.S. Dollar as the Bank of England implemented further quantitative easing by augmenting its asset purchasing program to 375 billion Pounds. Analysts expected the currency would decline after the news, however, the Sterling rallied following the announcement and begun to decline soon thereafter on speculation the central bank took steps to bolster growth because of its dire diagnosis of the domestic economy.
The Yen traded mixed after the European Central Bank and the Bank of England eased their monetary policies. However, the Japanese currency declined against the greenback following the release of positive employment data out of the U.S. Investors expect today’s Non-Farm Payroll reports will exert a big influence on the value of the Yen; if the figures turn out to be less than favorable, the Yen could advance, especially if the markets anticipate further QE.
Lastly, the South Pacific currencies rallied after China reduced the interest rate for the second time in the month and the Bank of England increased its asset purchase target by 50 billion Pounds.
EUR/USD- ECB Cuts Rates
The Euro fell dramatically against the U.S. Dollar after the European Central Bank reduced the interest rate to 0.75 percent. The central bank also announced it would no longer pay interest on any overnight deposits. However, the bank failed to mention any decisions on limiting Spanish and Italian debt yields. In the meantime, Spanish bonds fell after the borrowing costs rose during an auction, increasing concerns the crisis remains unresolved. On the data front, German Factory Orders fell to -5.4 percent even though a -6.0 percent decline was forecast. However, Factory Orders climbed 0.6 percent MoM.
GBP/USD- BOE Announces Further Easing
The Bank of England restarted its quantitative easing program in light that the deepening Euro-zone’s crisis threatens to prolong the country’s economic slump. The Bank’s Monetary Policy Committee increased its asset purchase target from 325 to 375 billion Pounds and indicated it will take four months to complete. Bank officials stated that this measure is aimed at boosting credit and pulling the country out of the recession. The central bank left the interest rate at a record low of 0.5 percent. And on the data front, House Prices rose 1.0 percent in June.
USD/CAD- Loonie Rallies On U.S. Data
Canada’s Dollar traded at a seven-week high versus the U.S. currency following the release of better than expected jobs data which showed the employment sector has grown faster than forecast. In the days to come, Canada will report on its employment rate which is expected to fare better than that of the U.S. Elsewhere, the Loonie advanced versus the Euro after the ECB President indicated that the region’s growth outlook “faces downside risks.”
USD/JPY- Office Vacancies Rose
The Yen traded mixed, though it advanced against the Euro and the British Pound after the central banks from both regions took steps in the form of monetary easing to shore up growth. On the economic front, reports showed that Tokyo Office Vacancies climbed by 9.43 percent. Today’s data releases will include the Leading and Coincident Index, though Japan’s currency is expected to respond to the U.S. Non-Farm Payroll figures, especially if expectations of further QE increase.
Today’s economic calendar shows that the U.K. will report on PPI Input and Output. Switzerland will announce its CPI. The E.U. will issue data on German Industrial Production. Canada will publish the Unemployment Rate, Employment Changes, Building Permits and the Ivey PMI. Lastly, the U.S. will issue the much anticipated Non-Farm Payroll, Unemployment Rate, Private Non-Farm Payroll, Average Weekly Hours and Average Hourly Earnings.