Weekly Summary on USD, EUR, GBP, JPY, MXN and RMB

By Roger Baettig | July 16 2012 1:59 PM

USD - The US dollar is mixed against most major currencies despite record low Treasury yields and weaker than expected retail sales. US Treasury 5?year note yields fell to a record low after US retail sales declined in June, renewing concern consumer activity is being weakened by slowing US economic growth. The 10?year note yield also fell to a record low to 1.4402%. Retail sales in the US unexpectedly declined for a third straight month in June, a sign limited employment gains are taking a toll on the biggest part of the economy. The 0.5% drop followed a 0.2% decrease in May. Tuesday, the market will be paying close attention to the CPI index which is forecasted to post a decline from this time last year. Also this week, analyst are eyeing housing starts and building permits as these sectors act as growth?multipliers which may offer signs of growth or contraction in the coming months for the US economy.

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EUR -The euro is hovering just above 2?year lows vs. the dollar as ongoing uncertainty over bailout funds in Europe dampens risk appetite. The single currency held in the mid $1.22 levels amid a deteriorating outlook for global growth and renewed uncertainty over Europe's bailout plans. Germany's Constitutional Court today delayed a decision whether Germany can legally ratify Europe's permanent bailout fund and the fiscal pact for budget discipline. A decision on the fund, the European Stability Mechanism (ESM) and the fiscal pact will not be made until September. The German parliament is also expected to ratify the EUR 100 billion bailout package for Spain while Europe's finance ministers are expected to agree to final terms Friday. Downward pressure on the euro is likely to persist with any uncertainty heightening risk aversion and further declines for the single currency.

GBP - Despite being in its first double?dip recession since 1975, exports to Europe falling and the Bank of England adding to the supply of sterling by injecting 375 billion pounds of stimulus, the pound has risen 2.8% over the past 6 months. This has frustrated Prime Minister Cameron's plan to turn the economy around. The big reason for the move is a flight to quality away from the EUR, as can be seen with Gilts reaching yields not seen since 2008. This week brings a number of economic releases, led by CPI, unemployment and retail sales, so sterling should see some volatility this week.

JPY - The JPY outperformed all major counterparts throughout the local holiday trading this morning. The yen strengthened as investors continue their demand for a safe haven currency with EUR related concerns. Near term movement will be driven by broader market sentiment and further declines in USD/JPY are expected. MoF and BoJ have remained relatively quiet despite the strengthening of JPY, though threats of intervention risk may increase.

Commodity Currencies - The commodity linked currencies are relatively flat this morning as commodity prices are stabilize. Oil is slightly higher at $87/bbl, gold is lower at $1591/oz, and copper is showing the biggest loss, down to $347/lb. The CAD, while slightly weaker against the USD, is currently trading at a record high against the EUR (since 1999) amid concern policy makers haven't done enough to contain the euro region's debt crisis. Foreign purchases of Canadian securities reached a record in May as demand for bonds was fed by a growing yield premium against both the US and the euro?zone. The AUD and NZD maintained advances against the dollar from last week amid expectations policy makers around the world will step up efforts to bolster growth - thus supporting riskier assets. Tomorrow the RBA releases minutes from its last meeting when it kept borrowing costs unchanged. Traders will be looking for anything regarding future rate cuts, especially following last week's disappointing employment numbers.

MXN - The Mexican peso remained little changed since last week's close despite weak economic data that points to slowing global growth. Domestically, consumer prices for June grew by 0.46%, slightly above the market estimate of 0.43%. Industrial production y/y grew by only 3.1% in May from the previous 3.6%. With higher commodity prices at the start of this week, the peso may only be temporarily supported.

RMB - CNY weakened slightly against the USD last week as GDP report showed deceleration of China's economy in Q2. GDP slowed to 7.6% y/y from 8.1% in Q1. Fixed asset investment growth for June accelerated to 21% y/y from the previous 20%. Industrial production slowed to 9.5% y/y from the 9.6%. Retail sales remained strong at 13.7% y/y in June from the previous 13.8%. At the latest economic meeting, Premier Wen Jiabao called for a stepup in policies for the second half of the year despite the already recent cuts to the reserve ratio followed by the two interest rate cuts since June 7. With central bank officials now taking action to ensure a soft landing, economists expect growth to gradually pick up in Q3.