The U.S. Dollar weakened against most of its peers as risk appetite took over the market and stocks and commodity prices increased. The demand for refuge currencies, such as the U.S. Dollar, diminished as investors felt optimistic that Greek Prime Minister, George Papandreou, would gain the vote of confidence needed to seal the bailout package agreement. The Dollar managed to recoup some of its losses despite the lackluster Existing Home Sales metrics which showed the lowest level of sales in six months. However, figures indicated that the fall was much smaller than expected, indicating that although the housing sector is still struggling, things are not as bad as previously thought. The Federal Reserve began its two-day policy meeting during which Ben Bernanke is expected to extend the stimulus program. Analysts believe that the FOMC will keep the benchmark interest rates at zero to 0.5 percent, which has remained at the same level since December of 2008. Other data showed a reduction in Manufacturing for the New York and Philadelphia regions. Meanwhile, the rise in commodity prices, including crude oil, benefitted the Canadian Dollar. The Loonie advanced versus the U.S. currency on a higher demand for high yielding assets.
The Euro rallied as optimism reigned in the markets and investors believed that Papandreou will obtain the vote of confidence and thus implement the austerity measures he proposed in order to qualify for the additional aid package. Greece is in desperate need of that money and without it, the country may default by as early as July. The 17-nation currency erased some of its gains as data revealed that ZEW Sentiment was lower for both Germany and the E.U. region. Reports showed a remarkable decline in Business Confidence and despite this, the Euro advanced as tensions over the debt crisis dwindled down. The Pound Sterling benefited from the optimistic sentiment and rose versus the greenback; but the British currency dipped against the Euro as economic prints indicated that the U.K. has not curtailed spending and public borrowing went up.
The Japanese Yen rose versus the U.S. Dollar on weak housing stats, but slumped against the Euro on the positive outlook for the Greek debt crisis. Analysts expect the Yen to continue trading within a range until the FOMC announces its decision today. The Japanese currency’s strength comes as a result of poor expectations for the value of the greenback. Investors worry that the U.S. will maintain the interest rates low if the Feds continue with the stimulus.
In the South Pacific, the Australian Dollar traded mixed; the reading of the Reserve Bank’s Minutes indicated that policy makers saw it as a “prudent” measure to keep interest rates unchanged; they think that the situation in the Euro region may worsen. In addition, the Minutes indicated that they’re considering fiscal tightening at some point in the future.
EUR/USD- Papandreou Seeks Vote
Optimism reigned in the markets yesterday as the Greek Prime Minister sought a vote of confidence. If he obtains it, it may mean that Parliament will approve his five-year plan which includes a series of austerity measures. This would certainly persuade officials to loan Greece the funds it desperately needs to avoid defaulting in July. In the data front, figures showed that the Euro Zone’s Business Confidence fell dramatically of -5.9.
GBP/USD- Higher Borrowing
The Pound traded higher versus the greenback on positive expectations that Greece’s Prime Minister would obtain a vote of confidence. However, negative reports on the country’s public borrowing weakened the British currency versus the Euro. Financial releases showed that the government borrowed more and in May, it financed 11.1 billion Pounds.
USD/JPY- All Industry Activity Rose
The Japanese currency traded mixed. It advanced versus the Dollar following reports revealing a weak housing market for the month of May; and it dropped versus the Euro on risk appetite. Japanese news showed that All Industry Activity rose by 1.8 percent.
USD/CAD- Loonie Rallies On Risk Appetite
Canada’s currency rose against most of its peers as the demand for safe havens died down. The Canadian Dollar rallied as stocks and commodity prices increased in anticipation of the Greek vote of confidence. The Loonie also advanced against the greenback as crude oil rallied. The monetary unit stayed strong despite reports showing that Retail Sales advanced in April, though they were less than anticipated. Furthermore, the Index of Leading Economic Indicators showed a rise of 1 percent.
Today’s economic calendar shows that it will be a very busy day in the U.S. Federal Reserve Chairman, Ben S. Bernanke is scheduled to speak as the Federal Reserve concludes a two-day meeting. Furthermore, the U.S. will report on the House Price Index, Crude Oil Inventories, and importantly, issue the Interest Rate Decision as well as the FOMC Statement. The Euro Zone will release Consumer Confidence and Industrial New Orders. The U.K. will issue the MPC Meeting Minutes.