Forex Report: Monetary Policy Impacts Euro
iFOREX | Jun 11, 2014 05:45AM ET
FThe US dollar traded high against the majority of its peers days after the Labor Department announced that employers added more jobs than expected in May, denoting that the employment sector reached the same level as it was prior to the recession. The greenback was also supported by a hike in Treasury yields, and by the fact that the dollar Index which measures the performance of the currency against that of six other majors posted a rise of 0.22 percent, reaching a five-day high of 80.83. On the data front, economists predict that the U.S. will report a jump in Retail Sales, after rising 0.1 percent in April. Gold Prices rallied to the highest price in two weeks although the advance was kept in check as a vast number of speculators stayed on the sidelines awaiting any clues on the market’s trend. Gold for delivery in August surged to a session high of $1,263.70 a troy ounce on the Comex, but slipped back to $1,261.20 during the morning hours in New York.
The european Central Bank’s decision issued last week continues to be the topic of discussion. The shared currency depreciated against the greenback as borrowing costs plummeted dramatically. Speculators in the Forex are elated by the ECB’s announcements as they have found in the Carry Trades a new way to profit from the market. According to analysts, with the ECB slashing the interest rates, the strategy appears to be more lucrative. The British pound climbed against the euro for a fifth straight day and strengthened versus most of its counterparts subsequent to domestic releases which confirmed that output in the Industrial sector rose at the fastest rate since 2011. This showed that even the International Monetary Fund misjudged the resilience of the British economy, and bolstered speculation that the Bank of England may do something about the key cash rate.
The yen also strengthened versus the euro as the Bank of Japan gets ready for the month’s policy meeting. Economists don’t anticipate an expansion of stimulus, but they believe that the european Central Bank could continue to increase monetary easing in the months to come.
The Australian dollar climbed against the greenback on positive Business Confidence metrics but remained under pressure due to other news which disappointed investors. New Zealand’s dollar was also fueled by risk appetite in the markets and by the fact that China reported improvements in inflation, suggesting that this will help dairy products in the Tasmanian nation go up.
h3 /h3 h3 EUR/USD: Greece Sees Drop In Yields/h3The EUR/USD slumped, reaching the lowest rate in sixteen weeks. On Tuesday, economists pointed to the fact that the euro’s money market rates have contributed to the bond rally, denoting that the central bank’s measures are beginning to take effect. However, the recently announced measures are dampening the appeal for the euro. Meanwhile, countries such as Greece indicated that five-year bond yields dropped to 3.95 percent, below its New Zealand’s equivalent which offered 4.01 percent.
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The GBP/USD rallied after official macroeconomic reports confirmed that Manufacturing Production climbed 0.4 percent in April, and on a year over year basis it climbed 4.4 percent, beating forecasts for a 4 percent hike. The Office for National Statistics also indicated that Industrial Output surged 0.4 percent in April, just as expected, prompting the yearly rate to go up to 3.0 percent. With such stellar data, economists have reiterated that the British economy is very strong, and even stronger than the International Monetary Fund thinks it is. Industrial Production advanced at the quickest yearly rate since 2011, suggesting that the Bank of England may not delay past March in raising the borrowing costs. And with the U.K.’s economy surpassing forecasts, over half of the financial institutions in the country believe that the central bank could raise the key cash rate.
The AUD/USD rallied on Tuesday after the National Australia Bank announced that the gauge which measures Business Confidence posted a hike to 7 after coming in at 6 in April. However, the number of Job advertisements fell 5.6 percent in May, subsequent to April’s 1.9 percent increase. In the real estate sector, things appear to be cooling off. Home Loans remained stagnant in April, missing forecasts for a rise of 0.2 percent.
The EUR/JPY traded at the lowest level in four weeks on speculation that the Bank of Japan’s current stimulus measures are sufficient to bolster economic growth. Investors anticipate that even though the european Central Bank just unveiled a list of new measures, it may continue to introduce added stimulus to revive the region’s economy. The EUR/JPY slumped the most after the E.U. pointed to weaknesses in inflation and output. Meanwhile, speculators wait to hear from the BOJ’s governor, Haruhiko Kuroda, who is to speak at a press conference once the Bank of Japan issues its decision. The EUR/JPY was impacted by economic data which revealed a slower rate of inflation in the Netherlands and a decline in Industrial Production in France.
Daily Outlook: Today’s economic calendar shows that the U.K. will report on Claimant Count Change, the RICS House Price Balance and the Unemployment Rate. The U.S. will issue the Federal Budget Balance. New Zealand will post the RBNZ Monetary Policy Statement as well as Rate Statement and the Interest Rate Decision. Japan will release Core Machinery Orders. Australia will announce MI Inflation Expectations, Employment Change and the Unemployment Rate.
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