The U.S. Dollar remained weak yesterday following negative reports on housing, employment and manufacturing stats issued earlier in the week. The greenback softened against the Euro and the Yen as investors anticipate that economic reports will show a decrease in Retail Sales. And as stock prices increased, investors sought higher yielding assets, thereby pushing the currency further down versus its counterparts. Meanwhile, the debate over whether to continue with the stimulus rages on in Washington. While Democrats support continuation of the current policies, Republicans strongly oppose it and advocate the need for stringent measures in order to do away with the 1.4 trillion deficit. Analysts are doubtful that a QE3 may take place and predict this will affect growth. They went to say that the Dollar will turn to the hawkish side if inflation becomes an issue that leads to a hike in interest rates. Other news showed that the Canadian Dollar strengthened versus the greenback as a reduction in the unemployment levels boosted renewed attraction towards the Loonie. The rise however was short lived as crude oil, one of the country’s major sources of revenue, dipped to $96.91 a barrel for July deliveries.

The Euro traded mixed as investors continued to worry over a lack of commitment towards a second Greek bailout. The Swiss Franc benefitted the most from this uncertainty, trading at new highs against the Euro. But the 17-nation currency rose versus the Dollar as the topic of its economic slowdown continued to raise concerns. On the economic front, Italian Industrial Production increased by 1.0 percent which is more than expected. The Pound Sterling went up in value as investors anxiously await the release of the Inflation report, due out today. If CPI and RPI metrics show a remarkable increase it will signal that a hike in interest rates may be possible. However, analysts believe today may be a day for shorting the Pound as it may dip.

The Yen managed to strengthen though not by a large number of pips; the Japanese currency fell versus the Pound on anticipation of today’s rate decision. Negative economic news out of China turned beneficial for the Yen; however, the rally was tempered by a slump in Japan’s Machine Orders.

In the South Pacific, New Zealand suffered a repeat of February’s performance as an earthquake with magnitude 6.0 hit near Christchurch. Economists fear that the temblor may bring about a halt in economic growth and a rise in fiscal spending. This obviously weakened the Kiwi.

EUR/USD- Officials Raise To Reach Decision

Investors grew concerned over the fact that the E.U. has not reached an agreement on how to fund the second bail out for Greece. Luxembourg’s Prime Minister stated that any assistance should include “volunteer” participation from private investors. And while Germany agreed with this stance and stated that bondholders should contribute to the bailout, ECB President, Jean-Claude Trichet, disagreed by saying that imposing such burden on creditors would be detrimental. Meanwhile, officials are working towards a solution prior to June 24^th. 

GBP/USD- Investors Await CPI And RPI

Investors believe today’s CPI and RPI reports may point to higher inflation and raise the possibility for an increase in interest rates. On the other hand, data due this week on Unemployment and Retail Sales may indicate that the economy is deteriorating and convince the BoE’s policy makers to leave the rates unchanged.

NZD/USD- Earthquake Hits Near Christchurch

The New Zealand Dollar weakened yesterday as an earthquake magnitude 6.0 struck in a region close to Christchurch. The temblor certainly supports the case for the country’s central bank to leave the costs of borrowing money unchanged. Investors showed concern as New Zealand already faces major damage costs arising from February’s quake.

USD/JPY- Yen Increased On Chinese Metrics

As China released data indicating a reduction in their M1 and M3 Money Supply and a drop in Provision Of Loans, the Yen rose in value. This was brought on as investors speculated that the second world’s economy is slowing down and thus, gravitated towards safe havens. But the rally was stalled by lackluster Machine Order stats which reflected a fall of -3.3 percent MoM and a YoY decrease of -0.2 percent.

Today’s Outlook

The economic calendar shows that Japan will release its interest rate decision and Industrial Production. The U.K. will issue the Consumer Price Index as well as the Retail Price Index. And lastly, the U.S. will report on Advance Retail Sales, Producer Price Index and Business Inventories.

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