USD rebounds despite lower than expected consumer sentiment data 

EUR weakens amid Portugal turmoil

Commodity currencies weaken,  AUD approaches three-year low on China growth concerns

USD – The dollar rebounded after the release of mixed data out of the US. Consumer sentiment came in lower than expected, while producer prices surprised to the upside. Consumer sentiment edged lowerto 83.9 from 84.1 in June, below a forecast of 85. Producer prices, however, showed an increase of 0.8% last month, above the forecast of a 0.5% rise, the largest gain since last September. The rise highlights an increase in inflationary pressure that could further the Fed’s case to reducing its monetary stimulus. The market also further digested the FOMC minutes released earlier in the week coming to the realization that the Fed will be the first of the major central banks to start to scale back its asset purchase program even if the reduction occurs towards the end of the year. Look for the dollar to regain its footing and remain well supported throughout year end given the monetary policy divergence with the UK and Europe.

EUR – The euro slid against the US dollar, down 0.33% since yesterday’s close and dipped below its 50-day moving average. Data releases in the Eurozone have been limited today, with no change in tone from headline commentaries. However, political risks in Portugal have increased with the threat of an early election (June 2014) and rising fears that the country will be forced to ask for an additional bailout. The socialist leader, Antonio Jose Seguro, recommends a re-negotiation in the terms of the EUR 78 billion state bailout and once again urges a focus on growth to cut unemployment and its debt pile by abandoning 'excessive austerity.’

GBP – The pound ended its two-day rally vs. the greenback, slipping 0.45% from yesterday’s close ahead of next week’s BoE minutes. Sterling is still well above Tuesday’s three-year low, and is currently trading under 1.3% below the 50-day moving average. For the moment, markets are turning their attention to next week’s release of UK inflation data and the minutes from the last BoE meeting for further clues as to how long the BoE plans to keep interest rates low.

JPY – The yen is slightly weaker today vs. the dollar after the BoJ reaffirmed in yesterday’s monetary policy meeting its commitment to maintaining stimulus measures. The yen remains below the key technical level of 100, although some analysts expect the yen to continue to weaken, especially if the Fed starts tapering its quantitative easing program earlier than expected. Today is relatively light with regards to Japanese economic data, while some of next week’s key releases include June’s export, import, and adjusted merchandise trade balance data. Also, the market will start to look towards Japanese elections, set for July 21st.

Commodity Currencies – The Australian dollar slipped to a near three-year low against the US dollar on speculation that its main export market, China, will post weaker-than-expected growth figures next week. The AUD slipped 1.52% in the trading session after news that China's finance minister indicated Beijing may be willing to tolerate economic growth below 7% for 2013. However, Q2 GDP growth for the world’s second largest economy is expected to come in at 7.5% but concerns remain over political willingness to accept lower growth. Meanwhile, the CAD slightly weakened against the broadly stronger USD, halting a rally of 1.82% from the start of the week. The focus for CAD is turning towards next week’s BoC policy decision where Governor Poloz’ will make his first rate announcement. Expectations for higher interest rates in Canada have fallen with economists surveying a 20% chance of an interest rate hike taking place next year. With the better than expected Q1 GDP, improved oil pricing, reasonable housing data and a recovery in the US, investors do not expect the BoC to make improvement on rates in the near horizon.


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