The U.S. Dollar gained versus most of its counterparts as jitters over the sovereign debt crisis boosted appeal for U.S. assets including bonds and stocks. The greenback extended gains as Italy’s 10-year bond yields remained unchanged at close to the 7 percent level. Investors are no longer at ease about the debt situation, especially as European bond spreads widened once again. On the economic front, Industrial Production rose more than anticipated; metrics revealed it went up by a 0.7 percent seasonally adjusted rate. And while the U.S. monetary unit trimmed earlier gains in an extremely volatile trading session, fears of an escalating debt crisis in the Euro zone helped the currency rebound. Separate releases showed that the Consumer Price Index dipped for the first time in four months. Meanwhile, the Canadian Dollar strengthened against the majority of its counterparts on signs that the U.S. economy is recovering –a factor that boosted confidence in the market and in risk assets. The Loonie pared losses versus the greenback as crude oil rose to $102 a barrel.
The Euro traded at a five-week low versus the U.S. Dollar and the Yen on speculations that the European Central Bank will have to buy more debt in order to contain the debt crisis. The shared currency pared losses after the Federal Reserve chairman, Ben Bernanke, indicated that the Fed may work in conjunction with the ECB in order to prevent the crisis from worsening. The Euro zone’s currency continued to drop as Fitch Ratings indicated that U.S. banks are in serious danger and are jeopardizing their “credit worthiness” as the crisis in the E.U. escalates. Spain is scheduled to auction 4 billion Euros in bonds today, while France will attempt to sell more than $8 billion Euros of debt. Other currency trading reports revealed that the Pound Sterling weakened against the U.S. currency after the Bank of England’s governor, Mervyn King, forecast U.K. growth will be “broadly flat” in the first half of 2012. And according to analysts, the growth outlook will continue to weigh on the Pound. Furthermore, 10-year gilts declined as reports indicated a hike in unemployment. The U.S. Dollar rose against the Swiss Franc following better than expected CPI metrics.
In Japan, the central bank left interest rates unchanged and reduced its economic outlook after Governor Masaaki Shirakawa referred to the E.U.’s situation as a “danger for the export-led recovery” of the nation. According to strategists, the strengthening of the Yen has hurt automakers and the Bank of Japan may increase its asset-purchasing plan.
Lastly, the South Pacific currencies slumped against the greenback on worries that the European debt crisis may continue to worsen. New Zealand’s monetary unit fell to a six week low versus the U.S. Dollar on speculation that the central bank may reduce borrowing costs by 7 basis points. The Aussie dipped despite reports revealing a hike in pay rates excluding bonuses.
EUR/USD- ECB May Have To Buy More Debt
The Euro traded at an almost five week low against the U.S. Dollar on rumors that the ECB will have no choice but to purchase more government debt in order to help the region deal with the growing crisis. Fresh concerns placed added pressure on the yields of several Euro region economies, causing French 10-year bonds to reach Euro-era record highs while Italy’s 10-year bonds remained close to the 7 percent level. The Euro managed to trim some of its losses but the bond yields remained under pressure despite ECB purchases. On the data front, metrics showed that Consumer Inflation in the region remained at 3 percent for the month of October.
GBP/USD- Growth Outlook Weighs On Sterling
Britain’s currency weakened against the U.S. Dollar after the Bank of England issued a statement indicating the country faces weaker growth in the first half of 2012, leading to the possibility of further stimulus. The 10-year gilts dropped to record lows following a release showing that unemployment levels rose, while youth in the U.K. lost more than one million jobs for the first time since 1992. According to the central bank, inflation may not fall below 2 percent for two years. The International Labor Organization stated that unemployment increased by 129,000 jobs and the rate increased to 8.3 percent, which is a 15-year high.
USD/JPY- BOJ Reduces Growth Outlook
The U.S. Dollar traded higher against the Japanese Yen on the release of better than anticipated U.S. CPI which revealed a drop to a seasonally adjusted -0.1 percent in the last month. Meanwhile, the Bank of Japan reduced the growth outlook for the country, citing the Euro-zone’s economic crisis as the main reason. The central bank had to ease its policy in the past few weeks as the strengthening of the Yen continued to hurt exporters. The Bank of Japan indicated it may implement further stimulus if the currency continues to gain and may even consider buying foreign-denominated bonds in the months to come in order to reduce the value of the currency. According to the BOJ, economic growth will slow down to 2.1 percent in the last quarter of the year.
USD/CAD- Crude Oil Reaches Above $100
The Canadian Dollar traded mixed as sentiment fluctuated between risk appetite and jitters over the sovereign debt crisis. The Loonie rose versus the majority of its counterparts on signs that the U.S. economy is finally on its path to recovery and this will benefit the country’s exports. But the currency pared losses versus the U.S. Dollar after crude oil reached above $100 a barrel. The currency had dipped to a five-week low on increased concerns that the Euro zone’s turmoil will dampen demand for risk assets. According to analysts, the positive U.S. economic reports usually benefit Canada’s economy.
Today’s economic calendar shows that the U.K. will report on Retail Sales. The Bank of Japan will release its monthly report. The U.S. will issue data on the Initial and Continuing Jobless Claims, Housing Starts, Building Permits and the Philadelphia Fed Manufacturing Index.