- USD stronger as Fed minutes reaffirm market expectations of a September taper
- EUR flat despite better-than-expected PMI data
- Commodity currencies mixed as CAD plunges following weak retail sales data
USD – The greenback strengthened for a second straight day after the Fed minutes from its July meeting reaffirmed market expectations that the central bank will taper its bond-buying program in September. The news helped push US 10-year treasury yields to a fresh two-year high of 2.93%, which should increase the attractiveness of dollar-denominated assets. However, the dollar has pared some of its recent gains after US initial jobless claims slightly missed expectations, coming in today at 336K vs. a consensus estimate of 322K. Despite the disappointing reading, the four-week average for new claims still fell to its lowest level since November 2007, a positive sign for the US labor markets. Meanwhile, the Jackson Hole symposium, an annual forum for central bankers, policy experts and academics to come together and focus on economic topics, will run from today through Saturday. While the market closely watches the event in hopes to gain clues about Fed policy, this year’s meeting will be without some key figures including Ben Bernake, making it less likely we will gain new insights into the central bank’s monetary policy thinking.
EUR – The euro is flat today as pressure from a broadly stronger dollar has been somewhat offset by better-than-expected Eurozone PMI data. Manufacturing PMI rose to 51.3, a 26-month high, while services PMI came in at 51. Germany is the main driver behind these bullish numbers, as its manufacturing PMI rose to a two-year high of 52 on growing demand for its exports. France however, the Eurozone’s second largest economy, came in with weak numbers as both manufacturing and services PMI dropped into contraction. While France’s lackluster data is cause for concern, the Eurozone economy as a whole seems to be on the road to long-term recovery. Markets will now turn their attention towards tomorrow’s release of the Eurozone Q2 GDP data, expected to come in a 0.7% q/q.
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GBP – The pound slipped back below the 1.5600 level after reaching a two-month high vs. the dollar in yesterday’s session, down 0.5% overall on dovish comments from the BoE. Martin Weale, one of the BoE’s top policymakers, said the central bank is not assured of an economic recovery and has not ruled out additional monetary stimulus measures, if necessary. In addition, BoE chief Mark Carney is expected to speak as early as next week to reiterate his pledge to keep rates low until unemployment levels fall to 7%, which is not expected to happen for another three years. The pound has rallied during the month of August as a stretch of positive economic data prompted markets to shorten the time horizon for interest rates to rise.
JPY – The Japanese yen fell a sharp 1% against the US dollar breaking past the August 15th resistance peak of 98.67. The JPY touched a low of 98.83 in today’s interbank market session, largely reacting to news coming out of the US and amidst the BoJ’s two-stage plan to lift sales tax rates from the current 5% to 8% next April. It is expected to move to 10% by October 2015 in order to reach the 2% inflationary target goal. Prime Minister Shinzo Abe announced that a final decision on the BoJ’s first stage of its tax hike will be in place by this fall.
Commodities Currencies – The Canadian dollar plunged to its weakest level in six weeks against the US dollar following weaker-than-expected data in Canadian retail sales. The report shows retail sales fell 0.6% in June after a 1.8% gain in May. Analysts expected a decline affected by the floods in Alberta and a construction labor strike in Quebec, which took place two weeks out of the month. The Australian and the New Zealand dollars slowly recovered from large losses earlier this week against the US dollar. Both Antipodean currencies are reacting to news out of China showing manufacturing data hit a four-month high as new orders rebounded, showing support that the world’s second largest economy may be stabilizing. The kiwi remains under pressure with new lending restrictions placed by the RBNZ early this week.
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