USD broadly stronger on bullish consumer spending data
EUR weaker despite better-than-expected German ZEW report
Commodity currencies weaker, Aussie dips on poor data and low consumer confidence
USD - The dollar soared to a one-week high against both the euro and the yen after a key gauge of U.S. consumer spending rose at its fastest pace in seven months, rising 0.5% last month, strengthening the case for the U.S. Federal Reserve to scale back stimulus measures perhaps as early as next month. July's gain was the largest since December, and suggests the economy could be regaining steam after tax hikes and federal budget cuts dragged on growth in the first half of the year.
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EUR - The euro initially strengthened after the release of a robust German ZEW report, but the single currency has since pared its gains and is now down 0.4% in today’s trading session. The ZEW, an index that measures investor sentiment, showed the current situation rising to 18.3 and expectations increasing to 42.0, signaling optimism that a Eurozone recovery is picking up pace. Despite such encouraging data, markets are still well-aware that the ECB has pledged to keep its monetary policy accommodative in order to support an economic recovery, applying continual downward pressure on the euro. Traders will turn their immediate attention to tomorrow’s release of Eurozone GDP data, which is expected to show that the region has emerged from recession in the second quarter.
GBP - The pound is flat today after CPI data for July came in as forecast, showing that inflation slowed to 2.8% y/y from 2.9% y/y in June. Housing data showed that British house prices rose 3.1% in the first two weeks of August, bringing overall housing inflation levels to their highest in seven years. While inflation remains an important economic indicator to watch in the UK, for now the markets remain focused on Wednesday’s jobs report, the first since the BoE announced last week that it did not plan on unwinding economic stimulus measures until unemployment levels dropped to 7%. Investors will also closely analyze the minutes from the BoE’s last meeting, looking for clues as to whether the bank’s new “forward guidance” policy was unanimously agreed upon.
JPY – The yen plunged 1.2% today vs. the greenback on speculation that Prime Minister Abe may implement a corporate tax cut as a way to mitigate the potential economic drag of a planned two-stage hike in the national sales tax. According to the Nikkei economic daily, the PM called for a study on lowering the corporate tax rate as a means of attracting foreign investment. Abe also continues to waver on whether to proceed with scheduled tax hikes, a decision that is due in September or October.
Commodity Currencies – The Australian and New Zealand dollars lost some ground against the US dollar with poor Australian data reminding markets that interest rates could yet fall again. The National Australia Bank’s monthly survey showed Australian business confidence fell back to -3 in July, from 0 the previous month, tumbling to its lowest level since November 2012. The Aussie slipped to a low of 0.9070 in today’s interbank market session after reaching a two-week peak of 0.9221 touched yesterday. Similarly, the New Zealand dollar pulled away from a 10-day high of 0.8059 hit yesterday, reaching today’s interbank low of 0.7933. Markets await key data this week in New Zealand, including second-quarter retail sales on Wednesday. The Canadian dollar weakened against its US counterpart mainly due to strong US data reports. Expectations of the CAD moves are limited until Friday’s manufacturing sales data and market action is expected to pick up towards month end with the release of Canadian inflation, retail sales and economic growth data.
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