Daily Report: EUR/USD, GBP/USD, AUD/USD And USD/JPY : August 01, 2014
iFOREX | Aug 01, 2014 06:08AM ET
The U.S. Dollar headed for the largest weekly advance against the Euro since February and rose against all of its counterparts after official reports indicated that the Gross Domestic Product surged at an annual pace of 4.0 percent in the second quarter, beating predictions for an expansion of 3.0 percent. The data spurred speculation that the Federal Reserve may boost the interest rate soon. However, the greenback's gains were capped as the central bank's statement revealed that policy makers are concerned with the slack that's still palpable in the employment sector, even though the latest releases have shown improvement. The Federal Reserve also suggested that the benchmark interest rate would remain at the current low for a longer period of time. Lastly, the Fed stated that Inflation is inching closer to the bank's target. The report confirmed that the bank cut the monthly bond purchases by another $10 billion. The greenback responded by erasing some of its gains, as the statement appeared to be bullish. The Fed will continue to reduce stimulus and suggested that it needs another month of economic metrics before making any changes. On the data front, the U.S. Department of Labor showed that the number of persons who filed for Initial Unemployment Benefits in the week that concluded on July 26 went up by 23,000 to 302,000, more than the forecast hike of 22,000. The U.S. Dollar rallied to a nine month high versus most majors after the publication indicated that the Employment Cost Index climbed by 0.7 percent in the months of April through June, while experts had predicted it would go up by 0.5 percent.
Gold Prices continued to trade close to the lowest rate in five days while investors kept a close eye on the crises developing around the globe. Bullion for immediate delivery dipped 0.1 percent and traded at $1,294.61 an ounce during the morning hours in London, after bottoming to $1,291.57, the lowest since mid-July. Futures for delivery in December fluctuated slightly and reached $1,296.10 on the Comex Division of the New York Mercantile Exchange. In the Euro region, official announcements showed that the E.U.'s Inflation rate dipped in July, touching the lowest level in five years. The news took ECB officials by surprise, and sources say this may force them to expand stimulus. On the positive side, other reports revealed that Unemployment went down in June to the lowest level since September of 2012. However, sources say that speculators are shying away from Euro-related assets, and in fact, many trading experts believe that market traders may continue to sell off the Euro in the days to come, prompting the currency to reach below $1.3100. Just in the past three weeks, investors have pulled $403.3 million from the European stock funds. The British Pound plunged to a one-and-a-half-month low once again against the greenback subsequent to the announcement of positive macroeconomic fundamentals out of the U.S.
indicating that the economy expanded in the second quarter. In the U.K., House Price Inflation climbed in July, though at a slower pace. The Yen dipped against the U.S. Dollar but rose against the Euro as market traders opted for equities and greenbacks instead of harbor assets. On the data front, Japan reported a slowdown in salary growth for June, underlining the risks that Consumer Spending faces. Lastly, in the South Pacific, Australia's Dollar slipped to the downside against the greenback even though the FOMC's Statement capped the latter's gains. Official data published in Australia showed that Building Approvals declined in June, and Import Prices dipped in the months of April through June. New Zealand's Dollar reversed its trend; it retreated from a prior two-month low reached when the Reserve Bank's governor, Graeme Wheeler suggested that the Kiwi's value is "unjustified."
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EUR/USD- Inflation Drops Further
The EUR/USD slumped after reports out of the Euro region disappointed investors. For starters, Germany announced that the rate of Inflation dipped to the lowest level in over four years in July, raising speculation that the European Central Bank may take further steps to fight deflation. And according to Eurostat, the yearly rate of Inflation in the region dropped to the lowest level in five years by posting at 0.4 percent for July, falling from 0.5 percent. Core inflation which does not take into account volatile items like food remained unchanged at 0.8 percent. Economists explained that the drop in energy prices as well as in food helped the index post lower. Other official announcements revealed that Unemployment across the E.U. slipped from 11.6 to 11.5 in June, the lowest in almost two years. Lastly, German Retail Sales printed a hike of 1.3 percent following May's dip of 0.2 percent. And French Consumer Spending climbed 0.9 percent in June, somewhat higher than May's 0.7 percent uptick.
GBP/USD- Pound Still Low
The GBP/USD declined again as the Dollar gained strength following the release of solid economic reports out of the U.S. Meanwhile, in the U.K., lackluster House Price metrics weighed on the Sterling. Analysts believe that the measures that the Bank of England implemented in June to limit Mortgage lending could have contributed to the slowdown in the Real Estate market. According to the official release, House Prices rose at the slowest rate since spring of 2013. Further reports denoted that confidence among Consumers fell in July. Analysts believe that the Sterling's dip was mostly due to the greenback's strength. However, many of them are keeping an eye on the spreads between 10-year Gilts and Treasury yields as they anticipate that if the spread widens, the GBP/USD could dip further to the downside.
AUD/USD- Building Approvals Fall
The AUD/USD rose subsequent to disappointing Building Approval data out of the south Pacific nation. The reports showed that Approvals declined 5.0 percent in June, rather than the predicted 2.0 percent. The numbers for May were modified to post an increase of 10.3 percent rather than the announced 9.9 percent hike. Other news revealed that Import Prices slipped 3.0 percent in the year's second quarter subsequent to a drop of 3.2 percent in the months of January through March. The releases also indicated that the approvals for construction in the private sector dropped 2.2 percent.
USD/JPY- Positive News Benefit Greenback
The USD/JPY rallied as the Federal Reserve concluded its two-day meeting, and announced the reduction of the monthly asset purchases. The USD/JPY was also supported by positive releases indicating that the economy expanded 4.0 percent in the second quarter. In Japan, however, the domestic announcements have disappointed. Industrial Output slumped more than twice the anticipated amount. And this follows the decline in Manufacturing activities as well as Household Spending. The recent numbers are adding to evidence that the Bank of Japan may consider boosting stimulus; but analysts predict that policy makers may want to see further releases before making a decision. Thursday's metrics showed that wages slowed in June, suggesting that households will face more challenges to meet their responsibilities.
Today's Outlook Today's economic calendar shows that Australia will report on Commodity Prices. The Euro region will publish Manufacturing PMI. The U.S. will issue Core PCE Price Index, Non-Farm Payrolls, Personal Spending, Private Non-Farm Payrolls, Michigan Consumer Sentiment, ISM Manufacturing and the Unemployment Rate.
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