Traders continued to sell the dollar in the Thursday session, sending the currency to its lowest level in 2 Â½-weeks versus the euro at 1.5750 while falling to a near 2-month low against the sterling just shy of the 1.99-mark. Sentiment for the greenback remains soft following yesterday's FOMC policy statement which tempered market expectations for an imminent rate hike by the Fed. Despite the Fed adding greater weight to its emphasis on inflation, the statement fell short of explicitly hinting at any imminent policy tightening, thus prompting a sell-off in the dollar.
The economic reports released today were largely inline with consensus estimates, with the releases of revised Q1 GDP, core PCE, weekly jobless claims, and existing home sales. The final release of Q1 GDP remained unchanged at 1%, improving from 0.9% previously. Weekly jobless claims edged higher to 384k, compared with 381k from a week earlier. Meanwhile, existing home sales in May improved by more than forecast, up 2% to 4.99 million units versus 4.89 million units in April.
In the Friday session markets will digest a barrage of US economic data, including May personal income, real consumption, personal spending, PCE index, and the University of Michigan consumer sentiment survey. With sentiment mired near its lowest levels in 28-years, the June University of Michigan consumer sentiment survey will be closely scrutinized. Consensus estimates are calling for the final reading in the June sentiment survey to remain near its multi-decade lows at 57.0 from 59.8 in May.
The US equity bourses also slumped, with the Dow Jones lower by nearly 2.4% and the Nasdaq falling by over 3% to levels not seen since 2006. Lingering fears over the stability of the financial system were exacerbated by the downgrade of Citigroup to Goldman Sach's â€˜conviction sell' list. The weakness in US equities will also continue to weigh on the dollar.
JPY edges up amid heightened risk aversion
The yen recovered from earlier losses against the majors as the US equity sell-off prompted traders to buy the Japanese currency, pushing it to 106.66 against the dollar and regaining its footing against the euro to 168. The economic calendar from Japan later this evening will see several key reports, including the May unemployment rate, CPI, retail sales, household spending and industrial production. The unemployment rate in May is expected to remain unchanged at 4.0% while May CPI is seen rising to 1.4% from 0.9%. We look for the yen to continue to strengthen against the dollar amid heightened uncertainty over the US economic outlook, which in turn will result in lingering jitters of the stock markets.
Euro Firms, Awaits Data
The euro edged to its highest level in 2 Â½-weeks to 1.5763. Traders will look ahead to economic reports due out in early Friday. The data include Germany's June CPI, retail sales and Eurozone April current account balance due out. The inflation data from Germany is seen edging higher to 3.2% from 3.0% a year earlier, while easing to 0.2% from 0.6% a month earlier. However, retail sales in May are expected to reverse the 1.7% decline in April, rising by 0.5%.