The U.S. Dollar traded mixed against its peers as the Federal Reserve Chairman, Ben Bernanke, gave no indication that the central bank will take further steps at this time to spur economic growth. In his statement to the Joint Economic Committee in Washington, Mr. Bernanke indicated that the crisis in the Euro region poses a threat to the U.S. economy and therefore must be monitored. He suggested that the Fed remains “prepared” to implement whatever measures may be necessary to protect the country’s financial system. On the data front, the U.S. Department of Labor reported that 12,000 fewer people applied for Unemployment benefits during the week which ended June 2nd, dropping to a seasonally adjusted 377,000 as expected. The Canadian Dollar rose against the greenback after China announced its first rate cut since 2008. Risk appetite increased in the market, boosting growth-related currencies after the People’s Bank of China lowered its benchmark rate by 0.25 percent in an effort to bolster its economy.
The Euro reached a session high against the U.S. Dollar following news that the People’s Bank of China will cut the interest rate effective today. The 17-nation currency remained strong as German Chancellor Angela Merkel indicated that Germany is willing to back the region’s financial instruments. Other reports showed that there was a hike in demand for Spanish government debt –another factor that bolstered sentiment and supported the Euro. But the shared currency declined against the U.S. Dollar after Federal Reserve Chairman Bernanke issued a statement in which he mentioned that the U.S. economy is vulnerable to the fallout of the Euro region’s crisis. The British Pound rose to a one-week high against the U.S. Dollar as the Bank of England made no changes to its stimulus program, and China announced a cut in its borrowing costs. The Sterling gained against all majors except one of its counterparts on a release confirming that U.K. services advanced during the month of May.
The Yen slipped versus all of its most traded counterparts after China reduced its interest rates, dampening demand for safe havens.
Lastly, in the South Pacific, the Australian Dollar rose after data showed that its employment sector added 38,900 jobs, which went against predictions. The Aussie pared its advance with the U.S. currency as traders speculated that the Reserve Bank of Australia will continue to cut the borrowing costs. The Kiwi gained in anticipation of Mr. Bernanke’s statement before lawmakers.
EUR/USD- Euro Rises On News From China
The Euro traded at a two-week high versus the U.S. Dollar as Germany seemed to soften its stance regarding support for the Euro-region’s financial instruments. Sentiment remained strong after Jean-Claude Juncker, head of the region’s Finance Ministers, stated that Spain would receive aid for its troubled banks, while Fitch downgraded the country’s short-term debt from F1 to F2. Other reports indicated that Spain sold 2.07 billion Euros in bonds, surpassing the targeted amount; however, borrowing costs rose.
GBP/USD- BOE Leaves Policy Unchanged
The British Pound advanced to a one-week high versus the U.S. Dollar after the Bank of England left the interest rate at 0.5 percent and made no changes to its current quantitative easing program. Policy makers agreed to leave the asset purchasing program at 325 billion Pounds. On the data front, economic releases showed that the U.K. Services Purchasing Manager’s Index posted at 53.3 in May, after economists had predicted a decline to 52.7. The Sterling was also supported by news indicating that China cut the interest rates, dropping the one year deposit rate to 3.25 percent effective today. The one-year lending rate will decline to 6.31 percent.
USD/JPY- China Cuts Rate, Yen Drops
The Yen weakened against all of its peers after China announced it was cutting interest rates for the first time since 2008, thereby boosting demand for risk assets. For now, Governor Masaaki Shirakawa has given no indication that the central bank is going to increase its asset purchasing program.
AUD/USD- Aussie Unemployment Rises
The Australian Dollar remained firm despite a slight increase in the unemployment rate. However, details of the employment report were somewhat encouraging as they showed an increase in jobs. According to official reports, 38,900 more people obtained employment in May. However, the unemployment rate went from 5.0 to 5.1 percent. The Aussie was also supported by China’s move to bolster economic growth through further easing.
Today’s economic calendar shows that the U.K. will report on PPI Input and Output. Canada will release data on Housing Starts, Trade Balance, the Unemployment Rate, Changes in Employment and Labor Productivity. The U.S. will announce its GDP. And China will issue CPI and PPI.