The U.S. Dollar traded mixed against most of its peers, but gained versus the Euro as the president of the European Central Bank President, Jean-Claude Trichet, acknowledged that regional economic risk has intensified. The U.S. currency rose following a speech by Federal Reserve Chairman, Ben Bernanke, in which he addressed the economy but fell short of confirming that the central bank would implement measures for bolstering economic growth. The greenback made further gains versus the Euro as the Organization For Economic Cooperation And Development reduced its global growth outlook. Investors await President Obama’s upcoming presentation to congress, which will be aimed at cutting employment taxes and improving the job sector. On the data front, U.S. Initial Jobless Claims climbed more than anticipated, from 409,000 to 414,000. Trade Balance was improved revealing that the weak dollar benefitted exports. Meanwhile, the Canadian Dollar dipped from its strongest price this week against the U.S. currency on a reduction of growth forecasts by the Organization For Economic Cooperation And Development; and it dipped further due to comments by Mr. Trichet, indicating that a credible threat to the Euro-region’s stability looms.
The Euro fell to its lowest trading rate in one month against the U.S. Dollar as ECB President Trichet indicated that the region’s economy is faced with extreme uncertainty and intensified downside risks. Mr. Trichet affirmed that inflation had balanced itself, while reducing the growth forecast for this and next year. Some investors believe a reduction in interest rates may come at a later time despite no signals from Mr. Trichet. Others firmly believe this may not take place any time soon. The currency was further weighed down by negative economic metrics. In the meantime, the Pound Sterling advanced against the U.S. Dollar and gained versus the Euro as the Bank of England announced it would leave interest rates unchanged. The Sterling advanced versus other major currencies, thereby surprising investors with news that the Monetary Policy Committee would also keep bond purchases at $320 billion (200 billion Pounds).
The Yen traded mixed and rose versus the Euro as the ECB revised the growth forecast. The Japanese currency fell against the Pound Sterling following the Bank of England’s rate decision.
Lastly, the Australian Dollar slumped versus the U.S. currency following metrics revealing that unemployment rose during the month of August. The number of employed people fell by 9,700 and the Jobless Rate rose to 5.3 percent. Traders now believe that the Reserve Bank of Australia will reduce the benchmark interest rate as the recent reports revived concerns that the country’s economy is slowing down.
EUR/USD- ECB Reduces Growth Forecast
The Euro reached new lows versus the greenback as the ECB announced it would leave the cost of borrowing money at 1.50 percent; the currency dropped further after the ECB President, Jean-Claude Trichet, gave investors reason to believe that interest rates would not be cut any time soon. The ECB reduced growth forecasts from 1.5 to 2.5 percent down to 1.4 to 1.8 percent in 2011. Growth expectations were also revised for 2011, leaving them at 0.4 to 2.2 percent. The currency continued to spiral downward as economic data showed that German and French exports dropped by -1.8 percent, the Trade Balance dipped to 10.4 billion and Current Account slipped to 7.5 billion.
GBP/USD- Monetary Policy Surprises Investors
While investors expected that the Monetary Policy Committee would unveil another bout of quantitative easing, it announced it would continue with the same policies. Analysts believe that investors based their speculations on the mounting pressures by the Institute of Directors who called for a hike in asset buying. However, as reports indicated, the BOE failed to give into such pressures. Today’s Product Price figures may have an effect on inflation forecasts.
USD/JPY- Exports Dip
The Japanese Yen traded mixed but benefitted from its refuge status as risk aversion remained strong in the market. On the economic front, figures indicated a lesser demand for Japan’s exports due to its overvalued state. The country’s Trade Balance fell to 123.3 billion after 149.1 billion had been anticipated. Current Account Balance dipped to -42.4 percent and Machine Orders slumped by -8.2 percent. A dramatic drop in Machine Orders has revived speculations that the Bank of Japan may intervene to avert the negative effects of the overpriced Yen.
USD/CAD- Positive Canadian Metrics
Yesterday’s reports showed that Canada’s Building Permits rose in July, jumping a seasonally adjusted rate of 6.3 percent. In addition, its Trade Deficit contracted more than anticipated. However, the currency dropped as the ECB and the Organization for Economic Cooperation and Development issued a lower global growth forecast. The currency fell despite the fact that it had strengthened on the previous day following predictions that the nation’s growth would resume in the second part of 2011. The Loonie, as may refer to Canada’s monetary unit, slipped further against the U.S. currency as Fed Chairman Bernanke failed to give indications on any new measures to accelerate growth.
Today’s economic calendar shows that the Euro region will report on German CPI, and French Industrial Production. The U.K. will announce Trade Balance and PPI input. Canada will issue its Unemployment Rate, data on Housing Starts, Labor Productivity and changes in Employment. There are no events scheduled out of the U.S. except for a minor release on Wholesale Inventories. Analysts expect a reaction to President Obama’s upcoming address to Congress.