USD is broadly stronger across most major currencies on better US data
GBP is lower after data showed contraction in domestic growth
JPY is weaker against the dollar after the selloff in Japanese stocks and bonds
USD – The US dollar was stronger across the board after retail sales and employment data reported better than expected. Retail sales in the US rose more than forecasted in May as recent job gains and lower borrowing costs encouraged consumers to spend. The 0.6% increase was the biggest in three months and followed a 0.1% gain in April. Meanwhile, fewer Americans than forecasted filed applications for unemployment benefits last week, showing that companies are refraining from firing workers even as growth cools this quarter. Jobless claims dropped by 9,000, bringing claim filings to 346,000 from a revised 355,000 figure. Also aiding the greenback was the release of personal spending figures, which was up by 0.3%. The market will look towards tomorrow’s Chicago’s Purchasing Manager’s Index and the Michigan Consumer Sentiment Survey for further direction on the US economy.
EUR – The euro recovered slightly after touching a key psychological level of 1.30 in the interbank market. The move occurred despite the release of the money supply and confidence numbers which reported near expectations. Meanwhile, Germany employed 12k more people lowering the unemployment rate to 6.8%. In other news, European Union finance ministers have agreed to share the costs of future bank failures to help stabilize its infrastructure. The agreement will also assist in protecting European taxpayers from having to rescue troubled banks. The market will be eyeing the commentaries from the two-day EU summit which ends tomorrow. Next week, the market will look towards the release of PMI and CPI followed by an ECB announcement and press conference on Thursday for further direction into the EUR/USD currency pair. Until then, we expect the EUR to continue to remain under pressure, trading in lower ranges below the 1.30 level.
GBP – Sterling is weaker today, dropping below the 100‐day moving average after the release of UK GDP figures. GDP data was revised downward to 0.3% y/y with q/q unchanged at 0.3% as well. The market will look towards next week’s BoE meeting, which will mark Governor Carney’s first official meeting as the new central bank president. Look for the sterling to continue trading in lower ranges as BoE policymakers show mixed views about policy tightening.
JPY – The Japanese yen weakened against the US dollar following positive US data releases and as Japanese investors cut holdings of overseas bonds and stocks for a fourth week. The yen weakened 0.46% against the dollar as the Nikkei 225 fell over 6% last night as all 33 industry groups declined to their lowest since April 3, the third fall of more than 5% in the past month. Many analysts believe that positive US data releases along with expectations of a reduced Fed stimulus plan will weaken the yen further.
Commodity Currencies – Commodity currencies are mixed as gold prices plunged to trade at levels not seen since August 2010. Meanwhile, the Canadian dollar edged up slightly vs. the greenback on reduced fears that the Fed will soon taper bond-buying activities and as the price of oil rose modestly. The AUD is relatively flat against the USD after the currency failed to react to a politically volatile day that included Kevin Rudd taking over leadership of the Labor Party from Julia Gillard. The defeat of PM Gillard had proved a modest AUD gain yesterday and has remained flat since then. Speculation rests on the fact that Rudd will help stabilize the party ahead of the election in September. However, ongoing China woes, the recent dovish ECB statements and the ongoing effects of Bernanke’s announcement have continued to promote a sell bias on the AUD.
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