The U.S. Dollar fell while the Dollar Index declined for a second consecutive week after the Federal Reserve Chairman, Ben Bernanke, did not confirm another round of quantitative easing at this time. However, he did indicate that further monetary easing would help reduce the unemployment rate, which remains above 8 percent. Chairman Bernanke stated that unemployment is of “grave concern” though further easing could interfere with current policy measures. Data released at the end of last week showed that the domestic economy expanded at a seasonally adjusted 1.7 percent in the second quarter. Also, Business Activity advanced at a slower place –a factor that prompted the greenback to drop versus the Yen. Michigan Confidence showed a greater than anticipated hike up to 74.3, and Factory Orders climbed 2.8 percent in July. The Canadian Dollar rose versus its American counterpart as the U.S. currency came under selling pressure on signs the Federal Reserve will likely implement further stimulus in the months to come. And in Canada, official figures confirmed that the country grew more than economists had predicted. The Loonie was also supported by news that crude oil futures for October delivery settled at $96.44 a barrel on the New York Mercantile Exchange.
The Euro concluded the week on a high note, as the trading markets were optimistic that the European Central Bank is still working on a viable plan to help stabilize the sovereign debt markets. The shared currency benefitted from comments by China’s Premier, who suggested his country is willing to purchase European bonds. The Euro gained against the U.S. Dollar on speculation the Federal Reserve will implement further stimulus in the near future; and it rallied to a two-month high versus the greenback subsequent to Chairman Bernanke’s comments indicating that the current level of unemployment is of “grave concern.” Meanwhile, the British Pound advanced versus the U.S. Dollar, though its rally was limited as market investors still believe the Bank of England may increase its bond-purchasing program while the nation continues to rise out of the recession.
The Yen rose against the U.S. Dollar after official data confirmed that Business Activity in the U.S. expanded at a slow pace, and as investors sought the safety of the Yen in order to hedge risk exposure to important events. The Yen dipped versus the 17-nation currency and the Sterling as demand for risk assets increased in anticipation of future stimulus by the Federal Reserve.
And in the South Pacific, the Australian Dollar rebounded from a five-week low against the U.S. currency subsequent to a statement by the Fed Chairman Bernanke confirming that the unemployment rate is of “grave concern.” This in turn offered clues as to why the central bank hasn’t dismissed the idea of further easing if needed. Today, investors await numbers on Australia’s Retail Sales after Friday’s releases showed that Building Approvals slipped more than predicted. The New Zealand Dollar traded at a two-day high versus the greenback on the likelihood the Fed will implement further stimulus in the not too distant future.
EUR/USD- Unemployment Remained Above 11%
The Euro gained against the U.S. Dollar on hopes the ECB will announce new measures that will help stabilize the debt markets. The Euro also benefitted from news that Jen Weidmann, head of the Bundesbank in Germany, may resign. This is good news as he has made it clear he opposes the ECB’s bond purchasing plan. Meanwhile, Unemployment in the Euro-zone remained at 11.3 percent; German Retail Sales dipped by -0.9 percent; and Consumer Price Inflation went from 2.4 to 2.6 percent in August. This week, investors will focus on the ECB’s post policy meeting, during which the ECB is expected to announce a new bond purchasing plan.
GBP/USD- Pound Rallies On Dovish Comments By Fed
The British Pound gained against the U.S. Dollar on what investors considered dovish comments by the Federal Reserve Chairman Bernanke. The fact that he refrained from further easing at this time but left the door open to the likelihood weighed on the greenback. On the economic data front, U.K. Home Prices rose 1.3 percent, the most since 2010. However, YoY prices slipped by -0.7 percent. Other releases showed that the Gfk Consumer Confidence survey remained at almost the same level. In the meantime, the Sterling remained fragile as market investors believe the Bank of England will increase its asset-purchasing program, though they speculate the bank will leave policy unchanged when it meets this week.
USD/JPY- Yen Gained On Safe-Haven Appeal
The Yen rallied versus the U.S. Dollar as investors sought refuge in anticipation of the Jackson Hole, Wyoming symposium and the ECB’s post-policy meeting scheduled for this week. On the data front, releases indicated that Manufacturing PMI slipped to 47.7; Household Spending increased by 1.7 percent when analysts forecast a 1.2 percent fall. The Unemployment Rate stayed at 4.3 percent; CPI YoY dropped to -0.4 percent when it was expected to decline by 0.3 percent. Industrial Production plunged by -1.0 percent when it was anticipated it would climb by 1.8 percent. And Housing Starts went down by -9.6 percent, not as much as predicted.
USD/CAD- Loonie Supported By Crude Oil
The Canadian Dollar advanced versus its American counterpart as investors sold off the greenback on signs the Federal Reserve may opt for fresh stimulus in the future. In Canada, data revealed that the nation’s Gross Domestic Product increased by 0.2 percent in June, exceeding expectations for a 0.1 percent hike. Canada’s currency was also supported by a 0.35 percent rise in crude oil prices. The commodity, which is Canada’s biggest export, settled at $96.44 a barrel by close of trade at the end of last week.
Today’s economic calendar shows that Switzerland will report on Retail Sales and the SVME PMI. The E.U. and the U.K. will release data on Manufacturing PMI. Australia will issue figures on the Current Account. And Japan will announce Average Cash Earnings. Markets remain closed in the U.S. in observance of Labor Day.