Daily Report: EUR/USD, GBP/USD, EUR/JPY And NZD/USD : September 18, 2014
iFOREX | Sep 18, 2014 06:39AM ET
The U.S. Dollar only rose against several counterparts while the markets awaited the Federal Open Market Committee's policy statement. Investors were looking for any signs of when the bank could raise the interest rate. The greenback sustained a decline on Tuesday after newspaper reports suggested that the central bank may keep its pledge to maintain the key cash rate at the present low for a "considerable time" after it winds down the stimulus program. Traders were reluctant to sell or buy Dollars in the morning of Wednesday, and remained on guard before the statement was issued. The U.S. Dollar weakened after the Labor Department confirmed that U.S. Consumer Price Inflation dropped 0.2 percent in the past month, placing the yearly rate of inflation at 1.7 percent; it posted at 1.9 percent in July. The surprising decline occurred as a result of a dip in energy prices, which went down by 2.4 percent, and gasoline plunged an astounding 4.1 percent. Gold Prices traded steady, but continued to fluctuate near the lowest level in eight months. Futures for delivery in December erased 0.1 percent and settled at $1,235.50 a troy ounce on the Comex, during the European market hours.
In the Euro region, investors are still worried that the recently imposed sanctions against Moscow could dampen growth. For starters, Germany trades with Russia; and the E.U. depends on Russia's gas exports to cover its energy needs. On the data front, the Eurostat announced that Consumer Price Inflation went up, although it remained below the European Central Bank's target of 2 percent. The British Pound gained versus the U.S. Dollar subsequent to the release of Unemployment Reports which showed a rate drop to the lowest level in six years. It also advanced against most of its Forex peers while Scotland's citizens prepared to vote on whether they wish to gain independence from the Union. The Bank of England published the most recent policy meeting minutes, and showed that two of the policy makers voted in favor of boosting the benchmark interest rate.
The Yen slipped to the downside versus its U.S. counterpart after news that he country's pension funds, which favor overseas investments have helped debase the currency. The Yen is slated to drop by the most in a month as investors buy foreign equities and bonds in large quantities. Reports show that the purchases reached the highest level since 2009.
And the Australian Dollar dropped versus the greenback after China's People's Bank announced that it will increase stimulus by injecting enormous liquidity into the major financial institutions. However, analysts are skeptical that this will mean a change in policy. New Zealand's Dollar was also impacted by the news, and fell further versus the greenback. It managed to regain its footing once the announcement came out, but declined soon thereafter. The Kiwi held its gains for some time, as investors speculated that the Federal Reserve may not offer clues on its plans to raise the interest rate.
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EUR/USD- CPI Higher Than Predicted
The EUR/USD traded steady ahead of the release of the FOMC statement, and as the E.U. released Consumer Price Index data. The latter showed that Inflation jumped 0.4 percent in August, above the preliminary forecast of 0.3 percent. The region's inflation also went up 0.4 percent in July. And even though the July numbers were amended to show a slight increase, they remain at a troublesome low below the ECB's 2 percent target. Core CPI which excludes items like tobacco products, energy and food surged 0.9 percent last month, just as analysts forecast. On a monthly basis, Consumer prices rose 0.1 percent, after printing a plunge of 0.7 percent in July. Worries over the impact that sanctions against Russia could have on the overall economy may prompt the European Central Bank to consider raising the key cash rate in 2015. Analysts say they may also consider such, in an effort to avoid the credit bubble that could develop as the economy picks up momentum. The EUR/USD rallied after the U.S. reported a slowdown in the Consumer Price Index.
GBP/USD- Unemployment at 6-Year Low
The GBP/USD went up although its advance was kept in check before the Federal Reserve released its statement. In the U.K., reports revealed that the Claimant Count went down by 37,200 in August, printing better than predicted. The Unemployment Rate fell from 6.4 to 6.2 percent, the lowest level since 2008. The GBP/USD remained strong after the bank of England issued the minutes from the last policy meeting, which showed that two officials were in favor of higher interest rates. The bank kept the key cash rate at 0.5 percent after it met on September 3 and 4. The bank's governor, Mark Carney has suggested that they could go up in the coming year. Other releases confirmed that the Average Earnings Index, including bonuses increased 0.6 percent in the third quarter, after dropping 0.4 percent in the months of April to June. Not counting bonuses, the index climbed by 0.7 percent. The two officials who voted for a rate hike indicated that salaries may increase at a rapid rate now that the slack appears to have been absorbed.
EUR/JPY- OECD Lowers Growth Forecast
The EUR/JPY rose slightly as the Euro regained its footing following the release of CPI data, and Japan assessed the need for further stimulus. Meanwhile, the OECD reduced Japan's growth forecasts while commending the central bank for considering the implementation of further measures to boost the economy. The bank's governor, Haruhiko Kuroda told Prime Minister, Shinzo Abe that the policy makers won't hesitate in taking action should the need arise. This stoked speculation that an expansion of quantitative easing could come about in the near future. Analysts say that the Japanese economy is struggling to overcome the sales tax hike of April, and they've grown increasingly worried that the recovery may stall. The European Central Bank continues to hope the Euro will weaken in order for the region's economy to bounce back.
NZD/USD-PBOC Expands Stimulus
The NZD/USD fell even though China's central bank reported that it will boost stimulus, and will offer huge liquidity to the country's five biggest banks. Analysts say this is a bold move on the part of the People's Bank of China, but others say that another big move may come about soon. The PBOC announced that it will provide each of the financial institutions with approximately $81 billion, therefore allowing the banks and other commercial lenders to request one to three month loans from the central bank. Economists say that in order for the economy to expand, the bank will have to take other steps such as reduce the mortgage rates. In the South Pacific nation, official metrics revealed that the Current Account's shortfall contracted to NZD$1.06 billion in the year's second quarter, after coming in at NZD$1.41 billion at the beginning of 2014. While the report denotes improvement, it disappointed those who expected the deficit to narrow t NZD$0.95 billion.
Today's Outlook
Today's economic calendar shows that Switzerland will issue the Trade Balance. The U.K. will report on Retail Sales, Core Retail Sales ad CBI Industrial Trends Orders. The U.S. will publish data on Building Permits, Housing Starts, Initial and Continuing Jobless Claims, Philadelphia Fed Manufacturing Index; and Janet Yellen. The Federal Reserve's Chairperson will deliver a speech.
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