The dollar gained versus a basket of currencies on Tuesday after a report showing an unexpected slip in June in U.S. consumer confidence (49.3 compared to economists’ forecasts of 55.1). The reported dimmed investors’ optimism over U.S. business and job conditions and boosted demand for the dollar as a safe-haven asset. The U.S. currency strengthened against the Japanese yen and Swiss franc and rose to session highs of 96.52 and 1.0891 respectively due to a drop in equity markets worldwide.
Although euro rose against the greenback to as high as 1.4153 in early European trading and the signal currency was able to recover the losses after German posted unemployment rate in June at 8.3%, which matched the consensus expectations, euro pared all its intra-day gains and tumbled to 1.4000 versus the dollar after the release of U.S consumer confidence data. Even though Chicago PMI in June came out at 39.9, which was slightly better than expected, the market’s focus was on the weak consumer report. This disappointing data also drove the U.S. stocks lower and dampened hopes of an early recovery around the world.
Earlier in European session, sterling rallied to its highest level in more than eight months to 1.6475 against the dollar as reports on house prices (0.9% versus economists prediction at 0.5% drop) and consumer confidence (-25 in June compared to a reading of –27 in May) added to evidence that the economy may be emerging from the recession. However, the British pound fell sharply from there after the release of weaker-than-expected U.K. gross domestic product (revised to –2.4% for the first quarter compared to the consensus forecast of –2.1%). Sterling hit an intra-day low of 1.6422 in New York afternoon. Cross selling versus euro and Japanese yen also weighed on the pound with eur/gbp rebounded strongly from 0.8437 to 0.8536 while gbp/jpy dropped from 160.27 to 158.23.
High-yielding currencies also dropped sharply partly due to dollar's broad-based strength and falling commodity prices as crude oil shedding recent gains, decline in gold prices all putting pressure on the 3 commodity-currencies. Aussie, New Zealand dollar and the Canadian dollar fell to 0.8039,0.6438 and 1.1640 respectively against the greenback.
Earlier in the day, Japan posted unemployment rate in May was 5.2% compared a reading of 5.0% in the previous month and household spending in May was 0.3% from a year earlier. However, the market reaction to this data was somehow muted.
Wednesday will be a holiday in Canada. Data to be released on Wednesday includes Japan Tankan big manufacturing and capex data, Australia retail sales, German, eurozone and U.K. manufacturing PMI, German retail sales, U.K. house prices, U.S. ADP employment, ISM manufacturing and pending home sales.