• Consumer sentiment in U.S. declines from six-year high

  • Sterling dips against dollar after hitting 4-month peak

  • Yen rises after BoJ minutes indicate monetary-stimulus limits

USD – The US dollar trimmed gains versus the euro and briefly extended losses against the yen after a survey showed U.S. consumer sentiment in June eased from a six-year high as progress in the labor market supported Americans’ views of the economic outlook. The University of Michigan preliminary index of consumer sentiment declined to 82.7 in June from 84.5 the prior month, the highest since July 2007.

EUR – The euro weakened against the US dollar as inflation in the euro zone rose from a three-year low in May, but remained low enough for the European Central Bank to act to boost an economy which is shedding jobs at an increasing rate. The final reading of euro zone core inflation came in at 1.3% y/y compared to expectations for 1.2% y/y.  The euro zone's condition was clearly visible in a 0.5 % drop in employment in the first three months of the year, Eurostat data showed, reflecting the unemployment rate that reached a new high in April, with 19.4 million people out of work. Economic recovery in the euro zone is expected to kick in later this year, but risks to the growth are on the downside as governments continue with painful fiscal consolidation and companies struggle to access credit in banks. Supporting the single currency, however, is the ECB leaving key interest rates unchanged in May, slightly lowering its growth outlook and discussing a raft of other policy options it could take if the euro zone economy does not emerge from recession later this year.

GBP – Sterling fell against the US dollar, pulling back from a four-month high hit the previous day as it struggled to break above strong technical resistance and prompting some investors to take profits.

Market participants reported selling by UK importers, although analysts said the pound is likely to retain recent gains given investors have lowered expectations of further stimulus after better-than-expected UK data.

JPY – The Japanese yen strengthened against most of its 16 major counterparts after minutes from the Bank of Japan’s latest meeting showed one policy maker advocated restricting stimulus to a two-year period.  The Japanese currency also extended gains against the dollar, putting it on course for its best weekly performance against the greenback since early 2010, as volatile stock markets had investors unwinding bets against the yen.. The yen later trimmed gains against the US currency as Nikkei futures edged higher and after U.S. data showed producer prices rose more than expected in May.  The yen has proved to be investors’ go-to safe haven to ride out global stock market volatility.

Commodity Currencies – The Canadian dollar strengthened to the highest in a month versus the US dollar as oil, the nation’s largest export, surged on concern tension in the Middle East may reduce exports. Canada’s dollar rose for the second week after the nation posted its strongest job gains in more than a decade last month and home construction rose the most in 13 months, driving expectations to the highest in more than a year that the central bank will raise rates. The Australian and New Zealand dollars slipped against the US dollar but remained well off their lows against the greenback. Both currencies have been hit hard in recent weeks by worries of slower growth in China, a key export market, and uncertainty about when the Federal Reserve will start scaling back its stimulus program.

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