Daily Report: EUR/USD, GBP/USD, AUD/USD And USD/JPY : November 19, 2014
iFOREX | Nov 19, 2014 02:14AM ET
The U.S. Dollar appreciated against several majors, and traded once again at a seven-year high versus the Yen. Meanwhile, investors await the release of the Federal Reserve's minutes to gain further insight on whether the central bank is considering an earlier than planned rate hike. On the data front, the Commerce Department announced that the Producer Price Index went up 0.2 percent, beating estimates for a 0.1 percent drop. On a year-over-year basis, the PPI climbed at an annual 1.5 percent in October, more than the predicted 1.2 percent hike. On an annual basis, Core Producer Prices inched up 1.8 percent, instead of the expected 1.5 percent. Other announcements divulged that output in the Manufacturing sector only sustained a modest increase due to a dip in automobile production. Some economists say the numbers signal that the country's Gross Domestic Product for the fourth quarter could disappoint; but there are those who believe that the economy has not lost momentum as evidenced by the recovery in Factory Production. The data showed that Factories enjoyed a 0.2 percent boost in the last month.
Gold prices went up by the most in two weeks after ECB President, Mario Draghi, suggested that the bank could begin purchasing diverse assets. Speculators predict that gold could be one of the items the policy makers will buy in an effort to prompt inflation to rise. With Mr. Draghi commenting that the ECB is willing to go the route of unconventional measures, investors have increased speculation that bullion could be one of the assets they'll use to bolster growth. Bullion for immediate delivery climbed 0.9 percent and traded at $1,197.52 in London. Futures for delivery in December reached $1,196.80 a troy ounce on the Comex Division of the New York Mercantile Exchange. Sources say that demand for the precious commodity has gone up, but India may soon unveil new regulations for curbing gold imports.
The Euro rallied against the British Pound and the U.S. Dollar as Germany surprised the markets by posting positive reports divulging a hike in Investor Sentiment. And in an official speech, Mario Draghi, the President of the European Central Bank said that buying bonds could be the way to stimulate an economy that appears to be taking a turn for the worst. He added that the central bank could implement non-conventional measures and this may include buying diverse assets like sovereign debt. Analysts say that the December policy meeting will be critical as officials will publish their economic assessment, something that not too many people are looking forward to since they're predicted to be dovish. Yves Mersch, one of the Executive Board members said that the bank will begin with the purchases by as soon as this week. He intimated that the bank may buy gold among other things as well as exchange-traded funds.
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The British Pound depreciated against the Euro subsequent to the announcement of lackluster Inflation data which signaled that Consumer Prices have dipped. The governor of the Bank of England, Mark Carney has already warned the U.K. that contagion from the Euro region could translate into lower inflation for the United Kingdom. And given the recent string of metrics, including the release on Inflation, analysts are almost certain the policy makers won't consider raising the key cash rate.
In Japan, a day after the economic releases showed that the country is officially in a recession, Prime Minister, Shinzo Abe stated that there won't be a consumption tax increase for now, and elections will take place in December. The Premier hopes to remain in office in order to implement his programs aimed at invigorating the economy. Mr. Abe announced that he will dismantle Parliament on the 21st of November, and will delay the sales tax increase by at least eighteen months. Early on Tuesday, Mr. Abe asked his Ministers to begin working on a new stimulus plan.
And Australia's Dollar climbed after the Reserve Bank issued the minutes from the last policy meeting, which confirmed that the monetary authorities want to leave the key cash rate at the current levels for some time to come, and they believe that the Aussie is still "overvalued." New Zealand's currency rose, but its advance was limited by the fact that traders have opted for safe havens following Japan's latest announcement revealing that it has entered into a recession.
EUR/USD- Solid ZEW Bolsters Euro
The EUR/USD advanced after the ZEW entre for Economic Research announced that the index which measures German Investor confidence soared to the highest level in four months, and posted at 11.5 for November, after coming in at -3.6 in the previous month. The news shocked investors who predicted the index would print at 0.9. Furthermore, the index which gauges the Euro region's sentiment rose to 11.0 in October after reading at 4.1 in September. The releases were issued after Mario Draghi, the central bank's President reiterated that policy makers are prepared to do whatever is necessary to prevent the low levels of inflation from dampening economic expansion. While addressing Parliament, Mr. Draghi stated that the bank plans to purchase more assets, and that may mean buying gold as well as government bonds. Bank officials are under pressure to do something since the interest rate reductions haven't produced the desired results. But there are objections to implementing quantitative easing; and although the individual nations have been asked to increase spending, German Chancellor Angela Merkel believes this is not the way to go.
GBP/USD- Inflation Slows
The GBP/USD rose as releases out on Tuesday indicated that Consumer Price Inflation ticked up 0.1 percent in October, just as economists predicted, after stagnating in September. The Office for National Statistics also stated that the rate climbed at a seasonally adjusted 1.3 percent in the past month, after coming in at 1.2 percent in September. Core CPI which does not take into account items like food and tobacco prices went up at a seasonal 1.5 percent, remaining at the same level as in September. Analysts were glad to see that inflation picked up momentum, however Mark Carney warned that the Euro-zone's economic troubles could affect the U.K., thereby reigniting the possibility that the central bank won't proceed with a rate hike at present. The BOE has said that world economic growth is "moribund" and because of the sluggish outlook for inflation and the crisis in the E.U., the British economy may only expand 2.9 percent in 2015, and 2.6 percent in 2016. The estimates were cut from 3.1 and 2.8 percent respectively. In other news, the U.K. revealed that Producer Price Inflation declined for a fifth month in a row. PPI input fell by a seasonally modified 1.5 percent in October; and output slipped by a seasonal 0.3 percent.
AUD/USD- RBA Releases Minutes
The AUD/USD climbed as the Reserve Bank's monetary policy meeting minutes were published. The currency pair was also supported by the culmination of a deal between Australia and China, a factor that many say will help cement the ties between the two trading nations. The agreement will also help Australia reduce its reliance on raw material exports. Reserve Bank Governor, Glenn Stevens, said that investors ought to be patient as the bank plans to maintain the current interest rates for some time in order to stimulate the economy. He noted that companies have been afraid to increase spending, while the real estate market has heated up. He suggested that entrepreneurs need to see economic stability before they'll open their pockets, and reiterated that businesses which are not involved in mining, have no barriers impeding them from accessing financing. In regards to the global outlook and the influences of outside factors, Mr. Stevens said that the policy makers will have to monitor China closely as its economy has slowed down and the property market remains bearish.
USD/JPY- Parliament Will Dissolve On November 21st
The USD/JPY advanced as Mr. Shinzo Abe, the nation's Prime Minister spoke during a press conference in Tokyo. He intimated that he plans to implement an ambitious program to bring the country out of recession. He added that Parliament will be dissolved on November 21st, and that he has asked his cabinet to come up with a plan to boost growth. Mr. Abe indicated that he wishes to extend his term and save the policies he planned to institute. Analysts believe that any new plan to revive the economy should include ways by which to avail women with jobs as many of them are leaving the country seeking employment elsewhere. It should also promote more immigration of workers into the country, and help increase household spending. Mr. Abe concluded by stating that the sales tax hike won't go into effect for another eighteen months.
Today's Outlook
Today's economic calendar shows that Japan will issue the Leading Index, Adjusted Trade Balance, Trade Balance, and the Bank of Japan will hold a press conference. The U.K. will publish the MPC Meeting minutes. The U.S. will report on Building Permits, Housing Starts, and will release the Federal Reserve's MPC minutes. New Zealand will announce PPI Input and Output. And China will post HSBC Manufacturing MI.
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