The Japanese yen and dollar rose against a basket of currencies on Friday as investors were disappointed by weak U.S. corporate profits and fading hopes for a global recovery due to a bigger-than-expected drop in a gauge of U.S. confidence this month. University of Michigan confidence survey came in at 64.6 compared to consensus forecast of 70.5. The yen and dollar rallied on Friday when investors flocked to less risky assets, the yen outpaced its U.S. counterpart this week partly due to the dollar’s status as the global reserve currency came under scrutiny at the G-8 summit although reaction to the calls made by Chinese and French for a renewal of the reserve currency system on Thursday was somehow muted.
Earlier in the day, German business daily Handelsblatt reported that at least ten Eastern European nations (including Bulgaria, Croatia n Macedonia) were in talks with the International Monetary Fund about multi-billion dollars emergency loans to prop up their troubled economies. In addition, lingering worries about the euro-zone banking sector kept the euro under pressure in European morning. European Central Bank data showed that the ECB and eurozone central banks bought 23 millions euro’s worth of covered bonds under a 60 billion euro program which was aimed at boosting lending to stimulate the ailing economy. Euro hit an intra-day low of 1.3878, however, cross buying on euro versus the British pound helped the euro to recover against the greenback in New York. Eur/gbp rose from 0.8537 to 0.8625 before easing in late New York afternoon.
On Thursday the British pound rebounded strongly from this week’s low of 1.5983 to 1.6381 versus the dollar after Bank of England announced that there will be no further expansion of its 125 billion pound quantitative easing scheme for now, relieving concerns that an inflationary policy would be continued. However, sterling fell against the greenback on Friday after U.K. stocks slipped and a report showed producer prices dropped in June by the most since 2001 (fell by 1.2% y/y versus economists’ forecast of 0.8% decrease and input price fell by 11% y/y compared to expectation of –12.2% due to the sharp decline in crude oil prices). The data signaled the U.K economy remained stuck in a recession. Cable dropped to an intra-day low of 1.6155 in New York morning before stabilising. The pound also recorded its biggest weekly loss against the Japanese yen in more than five months. Gbp/jpy tumbled to multi-week low of 146.81 on Wednesday.
The Swiss franc also dropped in tandem against the dollar and euro after Swiss National Bank President said the central bank would keep buying foreign currencies if needed in order to weaken the franc to prevent deflation. The single currency hit an intra-day high of 1.5168 verse franc while the dollar rose to as high as 1.0924 against the franc before retreating later the day.
Data to be released next week include Japan capacity utilization, industrial production, consumer confidence, Switzerland PPI, U.S. Fed budget on Monday, Japan BOJ rate decision, U.K BRC retail sales, house prices, CPI, RPI, German and eurozone zew index, eurozone industrial production, U.S. PPI, retail sales on Tuesday, BOJ minutes, Switzerland zew index, U.S. jobless claims, Philadelphia Fed survey on Thursday, eurozone, trade balance, Canada CPI, leading indicators, U.S. housing data on Friday.