The dollar and yen strengthened against the euro on Monday as U.S. stocks fluctuated after James Wells, CEO of Sun Trust Banks Inc., predicted that more bank losses will come, increasing demand for the U.S. and Japanese currencies as safe-haven assets. Wells also said that the banking industry 'is a long way from declaring any sort of victory' and commercial real estate may falter through 2010. The market was relatively thin as traders awaited more economic data from the U.S. and eurozone to further validate the view that these two economies are indeed recovering from the recession. The yen strengthened against higher-yielding currencies with eur/jpy falling from 136.09 to 134.99, gbp/jpy dropping from 156.81 to 154.85 and aud/jpy declining from 79.87 to 79.01.
Euro declined versus the dollar on Monday after rising to 1.4360 in Asian morning, the single currency hit an intra-day low of 1.4280 in European morning before paring some of its losses following the release of better-than-expected eurozone industrial orders. Eurozone industrial orders rose by 3.1% m/m in June, much higher than economists' expectation of a rise of 1.5%. However, the euro declined again in New York afternoon as DJI surrendered earlier gains and the index closed nearly flat. In addition, European Central Bank Governing Council member Yves Mersch suggested caution on the sustainability of the current economic recovery in the eurozone as the recovery depends mainly on public funds and is not yet supported by private investment and new job creation.
The British pound fell against the dollar on Monday on the view that U.K. interest rates will stay low due to the economy struggles to recover. Although follow-through buying from Friday sent cable to an intra-day high of 1.6547, cross selling in sterling pressured cable to 1.6392 in late New York afternoon. The pound declined to a multi-week low of 0.8728 against the euro as speculation increased that the Bank of England's asset purchasing program will push yields on gilts down, making the U.K.’s assets less attractive to foreign investors.
Data to be released on Tuesday include German GDP, export and import data, Switzerland employment level, U.S. consumer confidence and home price index.