Thursday was an interesting day for the U.S. Dollar as it weakened and strengthened throughout the trading sessions. The greenback rose versus the Yen and recouped against some of its counterparts after it dropped due to the release of news out of the Euro zone. The currency dipped against the Euro as investors forecast that the E.U. leaders will come to a consensus and find a solution to help member nations comply with paying their debts. The Dollar weakened further as Germany’s lower house of Parliament approved a proposed expansion of the European Financial Stability Fund. This set investors at eased and helped return risk appetite to the market. On the economic front, the U.S. revised its 2nd quarter GDP by 1.3 percent, which was higher than anticipated. Though this would have normally benefitted the greenback, the currency slumped against most of its counterparts. Analysts explain that the increase in growth may have fueled demand for risk assets. Other metrics revealed that the GDP Price Index rose to 2.50 percent and that the Initial Jobless Claims turned out better than expected with a drop to 392,000. However, Pending Home Sales fell -1.2 percent MoM while economists expected them to rise by 6.4 percent. The U.S. Dollar advanced against a number of its peers as stocks erased prior losses and as Fitch Ratings reduced New Zealand’s credit rating, thereby diminishing demand for high-yield assets. Meanwhile, Canada’s Dollar plummeted to an almost one-year low versus the U.S. currency given that a number of investors preferred to avert risk and bought U.S. Dollars. In general, Canada’s monetary unit responds to fluctuations in crude oil prices; however, yesterday it reacted to market sentiment as investors sought to liquidate their Canadian Dollar positions in order to obtain gains from the greenback’s dip in value.
The Euro continued to rally as the German lower house of Parliament approved a bill to extend the powers of the EFSF and to expand its funding to 211 billion Euros. German Chancellor, Angela Merkel, is seen as a strong leader and the votes confirmed her standing in politics. The vote also affirmed that the EFSF will purchase bonds from secondary markets –a move that’s aimed at helping banks maintain liquidity. The Euro’s strength was further supported by better than anticipated Italian bond sales which rendered over 7 billion Euros. The British Pound gained against the U.S. Dollar and the 17-nation currency as risk appetite dominated the markets and as reports showed that the Swiss National Bank will be stockpiling Pounds in the coming year. Analysts also believe that the positive metrics out of the U.S. helped boost investors’ confidence, a factor that contributed to the Pound’s appreciation.
The Yen dropped as risk appetite took over market sentiment and as data revealed a decline in Retail Sales for the month of August. Many economists believe this is a sign that the economy has been hit by the strong Yen, and the fact that households are unable to spend as much. This may encourage additional quantitative easing to promote growth and offset the taxes now being introduced.
Lastly, Fitch Ratings cut New Zealand’s long-term credit rating from AA+ to AA citing high levels of debt and continuous Current Account deficits as the main reasons. This caused the Kiwi to erase prior gains against the U.S. Dollar. Australia’s Unemployment levels increased 3.2 percent in three months, according to yesterday’s government reports. The Aussie Dollar advanced versus the greenback as stocks rebounded.
EUR/USD- Lower House Of Parliament Approves Expansion
The Euro rode the wave of risk appetite following an announcement that the German lower house of Parliament approved a bill to expand the bailout fund and extend the powers of the EFSF. On the economic front, data was less than stellar and portrayed a more realistic picture of the faltering economy. Economic Confidence fell to 95, Industrial Production slipped to -5.9 percent, Services dropped to 0 and Consumer Confidence dipped to -19.1.
GBP/USD- SNB To Stock Pounds
Reports that the Swiss National Bank intends to stockpile British Pounds boosted the currency’s value. Furthermore, approval for expansion of the EFSF bolstered optimism in the markets and prompted increased demand for risk assets. On the economic front, the Pound Sterling also benefitted from better than anticipated figures on Mortgage Approvals, showing an increase to 52.4. M4 Money Supply showed a slight contraction in August; the minimal decline may have also fueled the Pound’s price. Lastly, a hike in Consumer Credit to 0.5 bn eased concerns of another bout of quantitative easing.
USD/JPY- Retail Sales Slump
Yesterday’s reports indicated that Japan’s Retail Sales fell in August by -2.6 percent YoY versus the anticipated -0.6 percent. This signaled that the economy has slowed down and that it’s been severely affected by the overvalued Yen. Economists attribute the less than stellar data to the earthquake; they also believe it proves that the economy is in a state of stagnation. The disappointing data has raised speculations that another round of quantitative easing may be around the corner; and generally this would decrease the value of the currency; however, analysts expect that given the bleak economic situation around the globe, this may not take place in Japan as investors will continue to seek refuge in currencies like the Yen.
NZD/USD- Fitch Ratings Reduces NZ’s Credit Rating
The New Zealand Dollar erased gains against the U.S. currency as Fitch Ratings reduced the country’s long-term credit rating from AA+ to AA. Following this, the rating’s entity went on to say that the outlook is stable. The country has an 83 percent debt to GDP ratio in debt, and it’s the main reason why Fitch saw fit to cut its rating. The country’s Current Account deficit shows that imports exceed exports and will soon expand to 4.9 percent with expectations of widening to 5.5 percent in 2013.
Today’s economic calendar shows that the Euro Zone will report on Consumer Price Index and the Unemployment Rate. Canada will release data on GDP MoM and YoY. The U.S. will issue Personal Consumption, Personal Income, and the University of Michigan Confidence figures. Japan will announce numbers on Housing Starts, Construction Orders and Annualized Housing Starts. New Zealand will release metrics on Business Confidence.