- USD is slightly weaker after lower-than-expected domestic reports
- EUR stronger as consumer confidence reaches highest level in almost 2 years
- Commodity Currencies held firm as Canada reports higher retail sales and China implements reforms to boost growth
USD – The US dollar is slightly weaker across most major currencies as domestic data came in lower than analysts had expected. Home prices increased 0.7% on a seasonally adjusted basis from April while economists had estimated a 0.8% gain. In addition, the overall business activity index for mid-Atlantic region factories fell to -11 in July, according to the latest report from the Federal Reserve Bank of Richmond. Adding further pressure to the dollar was Fed Chairman Ben Bernanke's dovish remarks last week which emphasized that the central bank bond buying program will continue in some form while US rates are likely to remain low for the foreseeable future. Benchmark yields have fallen as other top Fed officials have stressed that the timing of any reduction in the central bank's $85 billion monthly asset purchases would depend on economic data. All of this, along with some weaker than expected US data, have prompted a dollar sell-off against key support levels. However, most analysts suggest that the dollar will likely strengthen in coming months as the Fed is expected to be the first major central bank to make its policy less accommodative.
EUR - The euro gained some ground against the dollar with mixed data out of the Eurozone today. Consumer confidence rose to its highest level in almost two years. The European Commission stated that consumer confidence jumped to -17.4 points in July from -18.8 points in June, beating market expectations for a rise to -18.30 points. The reading was the best since August 2011, when it stood at -16.8. In other news, euro-area government debt showed an increase. Debt in the 17-nation Eurozone rose to 92.2% of GDP in the first quarter, compared to 88.2% for the same period a year ago. The European Union’s statistics office stated that the rise was driven by Italy and the five countries receiving international aid amid the region’s financial crisis. With the IMF recently revising their forecast calling for the Eurozone to shrink to 0.6% this year, look for the EUR/USD currency pair to hold to current ranges, but start to weaken heading into Q3.
GBP – Sterling is hovering near a four-week high in early trading amid expectations that Q2 GDP growth numbers set to release later this week will point towards sustainable economic progress. Sterling has been climbing vs. the dollar the past few sessions on better-than-expected retail sales and improving labor market conditions. Despite the recent inflow of positive data, the BoE is still likely to keep monetary policy loose for the foreseeable future, preventing traders from getting overly bullish on the pound.
JPY – The yen is slightly weaker vs. the greenback today in the wake of Prime Minister Abe’s decisive Upper House election victory last Sunday, though the USD/JPY pairing remains below the key technical level of 100 on the interbank market. The markets are looking ahead to Thursday’s release of Japan’s June CPI figures, which are expected to rise 0.1% year over year. With the BoJ repeatedly stating it will continue its aggressive monetary easing policies until its 2% inflation target is reached, look for the yen to ultimately weaken.
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Commodity Currencies – The CAD strengthened against the USD after Canadian retail sales rose by 1.9% in May, the biggest gain since March 2010, to CAD 40.4 billion. In volume terms, sales were also up 1.9%, the third straight monthly gain. Meanwhile, the Australian and New Zealand dollars held steady from yesterday’s rally against the greenback as China, the largest importer from Australia, showed signs it was taking action to avoid a hard landing for its slowing economy. China's new government, led by President Xi Jinping, pressed ahead with reforms aimed at boosting the country's long-term growth. In doing so, the PBoC removed controls on bank lending rates which gave commercial banks the freedom to compete for borrowers, a reform that supports to lower financial costs for companies. As such, equities in Asia saw its biggest moves overnight with the Nikkei closing up 0.8%, the Hang Seng surging 2.3% and China’s CSI300 rallying 2.9%.
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