The U.S. Dollar erased losses a day after the Federal Reserve refused to implement another round of quantitative easing and opted for extending “operation twist” instead. According to this plan, the Federal Reserve will extend maturities on current debt holdings. The greenback soared above its peers as the U.S. released a flurry of lackluster economic reports, thereby increasing demand for safe havens. Official reports showed that Manufacturing in the Philadelphia area contracted at the fastest rate since August. The Federal Reserve Bank of Philadelphia stated that its Manufacturing index fell to -16.6 in June. Another release indicated that Existing Homes Sales dropped by 1.5 percent in May, which was more than economists anticipated. And in the Job sector, the Labor Department revealed that the number of Unemployment Claims dropped by 2,000 to a seasonally adjusted 387,000 last week where a decline of 9,000 was expected. The Canadian Dollar slipped the most since June 1st against its American counterpart after the fall in Retail Sales and a tightening of Mortgage terms raised speculation the central bank won’t increase the rates any time soon. The Loonie was also weighed on by less than stellar data out of the U.S.
The Euro weakened the most this month against the U.S. currency as Moody’s Investors Service announced its plans to downgrade the credit of as many as 17 banks and security firms. However, this isn’t the only factor keeping the Euro under pressure. Economic reports showed that Manufacturing in the region contracted at the quickest rate since June of 2009, and the disappointing PMI brought the outlook for growth into question. Investors were also nervous as they wait on the results of an audit of Spanish banks. Market investors are concerned the 100 bn Euro bailout may not be sufficient to help the troubled Spanish banking sector. The British Pound gained against the U.S. Dollar after data confirmed Retail Sales rose in May. But the currency fell as demand for refuge increased following the release of weak U.S. and Euro region economic figures.
The Yen dropped to the lowest level in close to one month against the U.S. Dollar as two-year yields surpassed similar-maturity yields in Japan by a large amount. Economists believe the Yen’s decline is mostly due to the wide interest rate differentials between the U.S. and Japan. Later in the day, an unnamed official suggested the Bank of Japan is considering further monetary easing in order to bolster economic growth.
In the South Pacific, the New Zealand Dollar rallied after official data indicated the country’s economy expanded by 1.1 percent in the first three months of the year. But the currency erased early day gains after Asian stocks declined on weak Chinese data which added to concerns the global economies are slowing down. The Australian Dollar fell against the greenback as risk sentiment dwindled away after the Federal Reserve failed to implement a third round of quantitative easing, going against forecasts. Sentiment was also hit after China reported that its HSBC Manager’s Index dipped to 48.1, remaining in negative territory.
EUR/USD- Moody’s Makes Surprising Announcement
The Euro weakened the most in June against the U.S. Dollar after Moody’s Investors Service stated it will cut the credit rating of 17 securities firms and lenders. The Euro also traded sharply lower against the greenback following a slew of disappointing U.S. data. On the data front, Manufacturing in the Euro-zone contracted at a dramatic pace, and the Purchasing Manager’s Index slipped from 45.1 in May to 44.8. Other releases indicated that PMI rose to 46.8 while economists anticipated a slight decline; however, it stayed below 50, showing contraction rather than expansion. Manufacturing in the region’s biggest economy also slowed down. According to figures, German Manufacturing slowed to the lowest level in three years as the debt crisis in the E.U. affected exports. Investors are also wary about the outcome of the Spanish bank audit; and although the country sold more than its target in the last bond auction, borrowing costs increased sharply. Yields on the five-year bonds went from 4.96 percent up to 6.07 percent.
GBP/USD- Sterling Dips On Bad News
The British Pound weakened against the U.S. Dollar as a bounty of negative economic reports out of the U.S. and the Euro region prompted investors to seek safe havens. The Sterling had risen earlier after U.K. reports indicated that Retail Sales increased 1.4 percent in May, exceeding expectations of a 1.2 percent hike. But Retail Sales for April were revised down from 2.5 to 2.4 percent. Sentiment was also hit as data out of China showed that the nation’s Purchasing Manager’s Index remained in negative territory, adding to concerns over global growth.
USD/CAD- Loonie Falls On Retail Sales
The Canadian Dollar declined the most in close to a month against the greenback after reports showed that Retail Sales fell 0.5 percent. The currency continued to weaken after Canada’s Finance Minister, Jim Flaherty, announced he will “tighten” mortgage terms in order to avoid a household debt crisis. According to reports, the government will cut the amortization period on mortgages insured by the government. It will also reduce the amount of money homeowners will be able to obtain against the value of their homes. The Loonie declined further following a slew of lackluster economic reports out of the U.S.
NZD/USD- Kiwi Up On Economic Growth
New Zealand’s Dollar gained against its U.S. counterpart after official reports indicated that the nation’s Gross Domestic Product rose by 1.1 percent in the first quarter of 2012. This confirmed that the South Pacific nation grew at the fastest rate in five years due to a hike in food and farm production. But the Kiwi’s gains were limited as sentiment veered towards risk aversion after China reported contraction of its Purchasing Manager’s Index for an eighth consecutive month. The Kiwi pared earlier gains following a decline in Asian stocks and as commodities fell dramatically.
Today’s economic calendar is light. Canada will report on CPI and Core CPI. The E.U. will release data on German Business Expectations and the German IFO Business Climate Index.