The US dollar tumbled against a basket of currencies after U.S. retail sales unexpectedly fell in July, spurring concerns that Americans remain reluctant to spend. The U.S. job market is still struggling, with the latest jobless claims rising slightly last week. The data came a day after the Federal Reserve indicated that the U.S. economy was showing signs of leveling out, which boosted risk sentiment. However, today's disappointing economic data brought back risk aversion. Yesterday, the Federal Reserve kept interest rates near zero and said it will slow the pace of buying Treasuries by the end of October.
The euro rose, supported by a weaker greenback and news that Europe's two biggest economies posted surprise growth in the second quarter. France and Germany unexpectedly grew as consumer and government spending rose. The news brought optimism that a recession in Europe could be bottoming out.
The British pound rebounded even though the UK unemployment rate jumped to 7.8 percent during the second quarter, the highest rate in 14 years, up from 7.1 percent during the first quarter. Yesterday, Bank of England in its inflation report indicated that rates will not be raised for some time. Expect the sterling to remain under pressure in the near term as rates remain low.
The Japanese yen initially weakened after upbeat European data spurred investors to seek higher-yielding assets. However, investors remain hesitant of buying higher-yielding assets too quickly without more solid proof that the global recession is ending. Next week, the market will eye Japan's gross domestic product data, which is expected to show a 1 percent rise in the second quarter after four straight quarters of contraction.
The Canadian dollar held gains as crude oil prices rose for the second day. However, the currency was slightly dented after U.S. retail sales fell 0.1% in July, the first decline in three months.
The Australian dollar rose ahead of an interest rate outlook announcement from the chief of Australia's central bank tomorrow. Investors are betting that Australia's interest rates may rise as soon as October after the RBA sounded surprisingly upbeat in recent comments.
The New Zealand dollar rose after U.S. Fed officials gave a more upbeat outlook of the economy. However, the currency was briefly dampened by a warning from Moody's Investor Services ratings agency stating that New Zealand's banking system faced a negative outlook, amid higher unemployment and weaker commodity prices.
10-Year Treasury Note Yield: 3.6664%
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