Daily Summary on USD, EUR, JPY, GBP, AUD, CAD and NZD

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Asian currencies like the Indonesian rupiah may be attractive investments for Westerners
Asian currencies like the Indonesian rupiah may be attractive investments for Westerners

•  USD strengthens following Fed chairman Bernanke’s statement

•  Sterling drops to 7-week low with a sharp drop in retail numbers

•  JPY weakens to a 4 ½-year low and the BoJ concludes its 2-day policy meeting

USD – The USD strengthened against the majors following Federal Reserve Chairman Ben Bernanke’s statement. He testified that the economy remains hampered by high unemployment and government spending cuts, and that tightening policy too soon would endanger the recovery. He also mentioned that premature tightening of monetary policy could lead interest rates to rise temporarily, but in turn could slow or end economic recovery and cause inflation to fall further. In addition, recent releases showed previously owned home sales continued to gain momentum and rose in April to the highest level in more than 3 years. Purchases of existing homes increased 0.6% to an annual rate of 4.97 million, the most since November 2009. Also following Bernanke’s statement, the S&P 500 index increased 0.9% to 1,683.67 and sent the yield on the 10-year benchmark bond down to 1.90% from 1.93% late yesterday.

EUR – The euro weakened slightly after hitting a 1-week high against the US dollar following statements from the Fed regarding tightening of its monetary policies. Markets will focus on the ECB announcements on Thursday when executive board member Coeure and more importantly President Draghi are both speaking. Also Thursday, Eurozone Consumer Confidence will be released followed by Friday’s release of German GDP. The euro hit a session high of 1.2998 from yesterday’s close of 1.2905.

GBP – The sterling slid to its lowest level in close to 7 weeks against the US dollar following data output showing an unexpected sharp drop in retail sales. Data included sales of food dropping 4.1% from March, the worst in nearly 2 years, and retail sales volumes including automotive fuel dropping to 1.3% in April from March. In addition, the BoE released their May minutes which showed Governor Mervyn King’s plan to expand bond buying was defeated for the 4th time. Also weighing on the pound is the International Monetary Fund’s call to Britain’s government to do more to speed up economic recovery by taking advantage of low borrowing costs to fund more investments. Finance Minister George Osborne remains conscious about borrowing more than planned due to a weaker economic environment which may damage Britain’s credibility with the financial markets that fund Britain’s debt.

JPY – The Japanese yen weakened to a fresh 4 ½ year low against the US dollar on Fed Reserve Bernanke’s statement on monetary policy. During their 2-day policy meeting, the BoJ unanimously voted to keep its monetary policy intact in order to stimulate growth and end deflation. The plan is to expand the monetary base by purchasing 60-70 trillion yen in government bonds, commercial debt and other assets. BoJ Governor Haruhiko Kuroda stated that although yields are up, there is no significant impact on the economy but will respond flexibly to continue to make large bond purchases if needed and may also tweak the way it purchased bonds in the market such as buying smaller amounts. The yen dropped as low as 103.60 from yesterday’s close of 102.46.

Commodity Currencies – Commodity currencies are weaker against the US dollar as declining commodity prices and softer domestic data adds pressure to its currency value. The Canadian dollar took a hit from unexpectedly soft domestic retail sales data, sliding to a 10-week low against the US dollar. The value of Canadian retail sales in March was unchanged from February while analysts had expected a growth of 0.8%. Lower than forecasted retail sales were particularly dragged down by the decline in gasoline prices resulting to a 1.3% drop in sales at the gas pumps. Meanwhile, the Australian and New Zealand dollars continued to slide further this morning after Australian consumer confidence fell sharply in May. Households remain wary about the economy despite the government efforts to boost the economy by cutting interest rates to a record low of 2.75%.

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