• US releases better than expected goods orders data
• Euro strengthens with upbeat German data release
• BoJ pumps 2 trillion yen in bonds leading the JPY to climb
USD – The US dollar weakened against most of the majors except the pound sterling and the commodity currencies but remained strong with positive US data. Durable goods orders increased 3.3% in April, better than the forecasted 1.5%. The demand in the factory sector, excluding aircraft and military goods which helps measure business spending plans, advanced 1.2%. Aircraft orders climbed 18.1% in April following a 43% slump in March. Equities are lower for the 3rd straight day as surprising gains in durable goods orders fueled concern about the pace of stimulus efforts. Market participants are still reflecting on Fed Chairman Bernanke’s statement to possibly scale back the pace of asset purchasing if economic conditions improve.
EUR – The euro climbed against the USD following an upbeat data release suggesting that Europe’s largest economy may be picking up. Surveys from Germany showed that the business climate index rose 105.7 in May from 104.4 in April. This prompted German bond futures to pare gains and sent the euro to a session high. Also helping the euro was a consumer sentiment indicator that rose for the 6th straight month to 6.5 going into June, up from 6.2 in May. Recent pay hikes in Germany have German consumers feeling more inclined to spend since September 2007, during the subprime crisis, boosting hopes that Germany may be recovering and a brighter outlook in the euro zone.
GBP – The sterling fell against the US dollar after poor data releases raised prospects of more policy easing by the BoE. The British Bankers’ Association reported that mortgage approvals rose by 32,200 in April, less than the expected 32,700 increase, after a 31,400 rise the previous month. The currency remains vulnerable on the possibility that incoming BoE Governor Carney could push forth more monetary stimulus which would lead to a weaker pound. With UK markets closed on Monday and little data next week, strategists say the pound will remain relatively range bound.
JPY – The Japanese yen climbed to a session high above the 101 level against the USD after the BoJ pumped 2 trillion yen into the financial system yesterday to counteract the rise in bond yields. BoJ Kuroda reiterated that to avoid excessive volatility in the debt market, that bond trading will need to be stabilized with flexible BoJ operations. Yesterday, the 10-year government bond yield reached its highest level in a year while Kuroda mentioned that he will keep strengthening communication with the market and that the unprecedented stimulus announced by the BoJ is sufficient. The 10-year bond yields were at 0.845% after touching a 1-year high of 1% yesterday. Japanese stock futures rose after the Nikkei index plunged 7.3% yesterday, its largest drop in 2 years, indicating the market may rebound.
Commodity Currencies – The Canadian dollar weakened against the USD with a weaker global equity market and commodities. Canada’s biggest export, oil, has declined for the 2nd day with signs that US inventories and the global economy is slowing down. Commodity prices continue to drop causing the CAD to fall 1% this week. The New Zealand and the Australian dollar weakened against the US dollar while concerns remain about the recovery of China, its key export market. Prices of commodities also weigh on the antipodean currencies with gold falling for the 3rd time in 4 days. In addition, the rebound of the US economy to possibly scale back its monetary stimulus is diminishing the appeal of precious metals
For more market reports go to Union Bank of California