Forex Report: Sterling Weakens; Aussie Supported By Budget
iFOREX | May 15, 2014 05:48AM ET
The US dollar traded to the downside against a number of Forex currencies, but analysts predict it is due for a rebound, especially as the dollar Index is already recovering. The greenback remained under pressure due to a deceleration in growth seen in the initial quarter of 2014. As the weather is improving across the U.S., the economy is expected to gather momentum. Just on Monday, Treasury yields rose, and a bigger hike is expected. Furthermore, according to the Redbook, Consumer spending went up in April. Data released on Wednesday confirmed that U.S Producer Prices ticked up 0.6 percent in April, which was more than anticipated, and Core Prices rose 0.5 percent rather than the forecast 0.2 percent. The Producer Price Index posted at a yearly rate of 2.1 percent instead of the predicted 1.7 percent hike. Despite the good news, the greenback remained unchanged. In the meantime, the crisis in the Ukraine has prompted a hike in risk aversion, causing assets like Gold to climb. Futures for delivery in June surged 0.46 percent and traded at $1,300.80 a troy ounce on the New York Mercantile Exchange. Caution has been the theme of the day in the market after reports indicated that seven members of the Ukrainian military forces were killed and others were wounded in a violent ambush in the Eastern region of Ukraine, which reignited fears that a civil war could follow.
The euro plummeted to the lowest price in two months against the yen on the likelihood that the european Central Bank may implement fresh easing measures in order to ensure that the economy continues to expand. The euro dipped against the greenback and the British pound, but steadied later in the day even against the latter after the Bank of England’s officials indicated they have no plans for raising the costs of borrowing money any time soon. The Sterling weakened as investors pushed back predictions on the central bank timetable for boosting the key cash rate. The British monetary unit remained to the downside subsequent to the release of the quarterly inflation report which confirmed a contraction in the country’s spare capacity.
The yen advanced against the U.S. dollar and the shared currency after domestic reports indicated a hike in the Corporate Goods Price Index. The currency was also bolstered by statements issued by former Bank of Japan policy maker, Kazuo Ueda, who now works at the University of Tokyo as professor of economics. In his statements, Mr. Ueda suggested that the economy has 50 percent chance of reaching the 2 percent inflation target. He advised the bank to consider tightening policy, should this become a reality.
Lastly, the Australian dollar reached a one-month high against the greenback a day after releasing the annual budget report. New Zealand’s dollar also strengthened against its U.S. peer even after the domestic releases pointed to a decline in Retail Sales. According to the announcement, Sales went up 0.7 percent in the year’s first quarter, less than the expected 0.9 percent. In the nation’s Financial Stability Report, the Reserve Bank showed that home sales fell 11 percent because of the introduction of stricter mortgage lending measures. Unfortunately, the bank anticipates further losses in sales until possibly October.
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The EUR/USD steadied despite the fact that it has been under serious selling pressure. The european Central Bank suggested that it may consider fresh monetary measures to make certain the economy doesn’t lose momentum. Economists believe that policy makers will attempt to prevent inflation from dipping lower, and may do so by reducing the interest rate. According to Reuters, the monetary authorities are looking at a package of measures which may include negative deposit rates as well as programs to increase lending to all size businesses. A day ago, the Bundesbank stated that it plans to support any easing measures the ECB suggests since deflation could become the region’s next big challenge.
The GBP/USD declined to the lowest rate in three weeks after government releases indicated that salaries climbed at a slower pace in the initial quarter of the year than anticipated. According to the Inflation Report published by the Bank of England, the economy’s spare capacity has shrunk, but there is still room for growth. This suggested that the Bank of England may not contemplate a rate increase for some time to come. The Office for National Statistics stated that wages jumped 1.3 percent, less than the expected 1.5 percent. In addition, Jobless Benefits slipped by 25,100 in April, missing forecasts for a decline of 30,000. However, the Jobless Rate dipped to 6.8 percent in the first three months of 2014, after previously posting at 6.9 percent. The bank’s Report on Inflation also revealed that over the next two to three years the economy could reach the 2 percent inflation target. Monetary authorities anticipate that the economy may sustain 2.9 percent growth next year, and this year’s rate could remain at 3.4 percent as previously estimated.
The EUR/JPY plunged to a two-month low on the possibility of further stimulus by the european Central Bank in the coming month. Peter Praet, an Executive Board Member of the ECB, was heard telling a German newspaper that policy makers are contemplating a number of options such as longer-term loans. Analysts believe that sustained weakness in the economy is prompting the bank to take action. The EUR/USD was little changed as investors looked ahead to reports which could show that German consumer prices fell and that output in the Industrial sector declined. In Japan, data indicated that the Corporate Goods Price Index went up 2.8 percent, meeting the economists’ expectations.
AUD/USD: Aussie Supported By Budget/h3
The AUD/USD went up on speculation by the country’s Treasurer, Joe Hockey, who anticipates that the budget deficit could be cut in one half over the coming months through the efforts of the Aussie government. He added that with more spending cuts and higher taxes, the nation’s budget deficit could shrink. In addition, the government is planning on spending money to strengthen the infrastructure by boosting the construction of a new airport, new roads and railways. The AUD/USD was supported by the likelihood that the Reserve Bank could lift the key cash rate by 11 basis points in the coming months. The budget report also confirmed that Australia is contemplating a cut on foreign aid, welfare and a number of public services.
Daily Outlook: Today’s economic calendar shows that the euro region will issue the ECB’s monthly report and will announce CPI and Core CPI, as well as GDP. The U.S. will publish CPI and Core CPI, Initial and Continuing Jobless Claims the NY Empire State Manufacturing Index, Industrial Production and Philadelphia Fed Manufacturing Index. Lastly, Switzerland will release PPI.
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