The U.S. Dollar slumped as risk appetite reigned in the markets on speculation that Italy and Greece are ready to form stable governments. The greenback slipped further against the Euro as Greece replaced Prime Minister George Papandreou with a technocrat, Lucas Papademos. But the greenback managed to bounce back as data showed the U.S. trade deficit contracted to 43.1 bn in September on record exports. In addition, Jobless Claims dipped to a seven-month low, indicating that the country’s economy may be on a straight path to recovery. In Canada, reports showed an unexpected trade surplus which caused the Canadian Dollar to rebound from its lowest price in four weeks. The Loonie, as many people refer to the Canadian monetary unit continued its rally as the Standard & Poor’s cleared the air after erroneously announcing a drop in France’s credit rating.
The Euro strengthened versus the U.S. Dollar as the S & P cleared France’s credit rating and confirmed it is still AAA, thus easing investor concerns over a possible contagion for the second largest economy in the region. However, France’s yields rose above 7 percent one day after Italy’s 10-year bond-yields reached Euro-era record highs. This is the same level at which Greece, Ireland and Portugal were forced to request financial bailout. The Euro continued on its upward trend as Italy succeeded in selling 5 billion Euros of bills and on rumors that the ECB intervened in order to keep borrowing costs down. And although the Monetary Policy Committee of the Bank of England agreed to leave the benchmark rates unchanged, the Pound erased some of its earlier gains versus the U.S. Dollar. Later on, risk appetite took over after a better than predicted Italian bond auction and the announcement of a new Greek Prime Minister. These factors helped boost the value of the Pound. However, the currency failed to remain strong and fell, especially against the Yen.
The Japanese Yen traded mixed though it advanced versus the U.S. Dollar and the Sterling. It dropped against the Euro as the shared currency recovered losses following signs there was still high demand for Italy’s assets.
Lastly, New Zealand’s and Australia’s Dollars slumped versus the greenback on concerns that Italy may be the next nation to require financial bailout. The two currencies had dropped dramatically against the U.S. monetary unit after Italy’s bonds had reached over 7 percent yields. The Kiwi continued to decline on reports that the nation’s manufacturing sector contracted. And the Aussie Dollar weakened further despite data showing an improvement in employment sector.
EUR/USD- Bond Auction Succeeds
The Euro came back strong after news that Italy’s bond sale was a success, leading investors to think that the country will be able to fund itself. Rumors have it that the ECB intervened in order to keep the cost of borrowing down, which hovered a tad below 7 percent. In Greece, the government announced that Lucas Papademos, a technocrat, would replace the previous Prime Minister, George Papandreou. Analysts believe this helped fuel the value of the Euro although many are still skeptic as to whether the coalition will be able to implement the new austerity measures. On the economic front, German CPI showed no change from the prior month; French CPI increased 2.3 percent although French Industrial Production slumped to 2.3 percent YoY. Italian Industrial Production was even more disappointing, a factor that did not improve the outlook for the country.
GBP/USD- BOE Decision Fails To Impact Pound
The Pound traded mixed as it mimicked the Euro’s positive rebound, but dropped in the latter part of the day. The Bank of England announced its decision to keep the base-lending rate at 0.50 percent and that it wouldn’t implement further asset purchasing. However, this did not impact the value of the Pound and the currency dipped further, even against the Euro.
USD/JPY- Data Shows Growth Stagnation
Japan’s currency traded mixed although it strengthened against the U.S. Dollar as demand for safety dwindled down. The Yen rallied versus the Pound despite the BOE’s renewed “wait and see” stance. On the data front, figures showed that an important measure of corporate spending fell more than anticipated as a result of the strong Yen. Core machine orders slumped by -8.2 percent and a Reuter’s survey indicated that optimism amidst manufacturers worsened in the month of November; and still yet, they expect the situation to worsen in the coming months. Analysts believe the metrics are indicative of stagnant growth. And with the situation in the Euro zone together with the strong Yen, the outlook for the country’s economy remains shaky.
USD/CAD- Trade Surplus Rises Unexpectedly
The Canadian Dollar recouped from having traded at the lowest price in four weeks after figures confirmed the first trade surplus in eight months. Statistics Canada revealed a merchandise trade surplus of $1.23 billion. The Canadian currency continued to appreciate as the S & P cleared the erroneous reporting on France’s credit rating, affirming it will remain at AAA. In addition, the U.S. trade deficit contracted as exports climbed to a record, another factor that benefitted the Canadian monetary unit. And as Italy succeeded in its bond auction, the Loonie continued its rally.
Today’s economic calendar is light. The U.K. will report on the PPI Output and PPI Input. And lastly, the U.S. will release the Michigan Consumer Sentiment Index.