While the U.S. Dollar traded stronger against commodity related currencies, it remained weak versus the Euro and the Pound. This was due to renewed optimism in the markets as French President, Nicolas Sarkozy and German Chancellor, Angela Merkel showed their support for Greece, thereby boosting the value of the Euro. However, the Dollar erased some of its losses on economic reports indicating a better than anticipated CPI at 3.8 percent. The U.S. currency slumped soon after the European Central Bank announced it would raise Dollar lending to the Euro-region banks. This eased concerns over liquidity and the region’s debt crisis. The greenback dipped as bank officials coordinated their efforts with the Federal Reserve and other major central banks including the Bank of Japan, the Bank of England and the Swiss National Bank. The ECB will offer three different monthly loans to make certain the region’s banks have enough dollars through the end of 2011. Other data showed that manufacturing activity in Philadelphia improved, though less than forecast, remaining in the negative for the second month in a row. This weighed on the Dollar as investors worried the economy may be faltering. The U.S. Dollar advanced versus the Yen on metrics indicating a seasonally adjusted 0.2 percent hike in Industrial Production for August. Meanwhile, Canada’s Dollar rose to a one week high versus the U.S. currency following announcements from the European Central Bank indicating it will loan U.S. Dollars to regional banks. This boosted speculation that the sovereign debt crisis may be contained. The Canadian Loonie continued to climb against the greenback as figures showed that the country’s Manufacturing Sales increased in July given the recovery in metal and energy production.
Investors recovered their faith in the Euro zone following a meeting between French President, Nicolas Sarkozy, the German Chancellor, Angela Merkel and Greek Prime Minister, George Papandreou. Their actions eased worries of a possible default and brought on renewed strength of the Euro. The world expects with hope that today’s meeting between E.U. Finance Ministers and the U.S. Treasury Secretary, Timothy Geithner, will produce a solution in order to avert the crisis from worsening. Analysts believe the U.S. will recommend utilizing a financing method that won’t rely on purchasing assets alone. The British Pound advanced against the U.S. Dollar following the combined intervention of the major central banks to inject liquidity into the money markets. The Sterling dipped versus the Euro as investors continue to fear another bout of quantitative easing.
The Yen fell against most of its counterparts but remained unchanged versus the U.S. Dollar. The actions by a coalition of major central banks to prevent seizure in the capital markets fueled risk appetite and diminished demand for safe havens. Investors feared the BoJ would intervene in the market after Prime Minister, Yoshihiko Noda spoke on Thursday to Parliament; at said time, he reiterated that a strong Yen is detrimental for the nation’s economy.
Lastly, The New Zealand Dollar slipped against the majority of its peers after the Reserve Bank left interest rates at a record low. The bank’s Governor, Alan Bollard, indicated that bank officials believe the global economy will slow down “sharply.” The Australian Dollar rose against the greenback as the ECB said it would lend U.S. Dollars to the Euro region’s banks, easing tensions over the debt crisis, and boosting demand for risk assets.
EUR/USD- Central Bank Coalition Boosts Currency
The Euro rallied as tensions over the debt crisis seemed to ease up. A coordinated joint effort to increase U.S. Dollar lending to area banks boosted confidence that the crisis may have been averted. This coalition was forged between the ECB and other major central banks including the Federal Reserve. However, there’s a certain degree of uncertainty on whether the increased supply of dollars will reverse the drop in interbank borrowing. On the economic front, reports showed that the Euro zone’s CPI did not change, but Employment rose 2.5 percent YoY in the second quarter.
GBP/USD- QE Fears Rage On
The British Pound rose against the U.S. Dollar following news that a coalition of central banks would inject Dollar liquidity into the capital markets. Dovish comments issued by Martin Weale, a council member from the Bank of England’s governing council, weighed on the Sterling. He indicated that additional quantitative easing may be needed to counteract the sluggish economy. He went on to say that the U.K. may enter into a double dip recession. On the economic front, data revealed that Retail Sales fell by only -0.1 percent; however, analysts say this is further proof that consumer spending is deteriorating.
USD/JPY- BOJ Now Part Of Intervention Coalition
The Bank of Japan joined other major central banks in coordinated efforts to boost U.S. Dollar liquidity in the money markets. Meanwhile, investors fear that the BoJ may intervene in the market as the strong Yen has been weighing on exports. According to yesterday’s economic releases, Japan’s Manufacturing rose for the 5th month in a row despite a slowdown in recovery.
USD/CAD- Canada’s Currency Reaches Week High
Canada’s monetary unit rose to a one week high versus the greenback as the ECB stated it will lend U.S. Dollars to the region’s banks. This of course prompted investors to believe the debt crisis may be under control. The Loonie, as many refer to the country’s currency, dipped against the Euro as the ECB worked with other central banks to coordinate its efforts to inject dollar liquidity. Data revealed that Manufacturing Sales increased 2.7 percent. Furthermore, Finance Minister, Jim Flaherty stated that the country’s growth will be moderate, since output contracted from April through June.
Today’s economic calendar shows that the E.U. will report on the Current Account and Trade Balance. Canada will release data on Foreign Securities Purchases. The U.S. will issue the Michigan Consumer Sentiment Index. And of course, all eyes will be on a meeting to be held between E.U. Finance Ministers and U.S. Treasury Secretary, Timothy Geithner.