The Japanese yen declined across the board as Goldman Sachs Group’s strong earnings (up 33% up in the second quarter) and better-than-expected U.S. retail sales stoked modest hopes for an economic recovery and encouraged investors to move back to higher-yielding assets. U.S. retailers beat expectation with 0.6% sales rise in June, boosted by a big jump in auto sales. However, excluding both autos and gasoline, sales were still down 0.2% in a fourth consecutive monthly decline, suggesting consumers remained reluctant to resume discretionary spending. In addition, U.S. Treasury Secretary Timothy Geithner said that he saw signs of confidence returning to the U.S. financial sector and pledged that the United States would pursue policies that preserve the dollar’s value. Dollar extended its intra-day rise to as high as 93.78 after result from Intel Corp. surpassed expectation.
Euro dropped versus the dollar as weak eurozone data weighed on the signal currency. German ZEW index came in at 39.5 compared to economists’ forecast of 47.8. Eurozone ZEW index in July was also weaker than expected (39.5 versus consensus expectation of 44.0). Eurozone industrial production also disappointed, growing only slightly in May after a 1.4% decline in April and remaining 17% lower than it was a year earlier. Euro fell to an intra-day low of 1.3911 in late New York trade partly due to crossing selling versus sterling as BOE policymaker-designate, Adam Posen, who said that he expected sterling to trade higher against the euro in the medium term. He also stated that he is 'more pessimistic' about the eurozone economy. Eur/gbp weakened sharply from 0.8614 to 0.8553 before stabilising. However, euro rebounded strongly from an intra-day low after Intel’s results.
Early on Tuesday, the British Retail Consortium said like-for-like retail sales rose 1.4% in June on the year while the Royal Institution of Chartered Surveyors said its house balance posted its best reading since September 2007. The data suggested that the U.K. economy may be bottoming out. The British pound hit an intra-day high of 1.6345 after Posen’s comment on sterling over euro. In addition, he said the BOE has not signaled the end of quantitative easing program yet. In New York session, the pound has retreated partly due to Geithner’s “strong dollar” comment. However, it rebounded strongly versus the greenback from 1.6240 after Intel’s earning report.
The Japanese yen weakened against high-yielding currencies on Tuesday on improved risk appetite. Euro, aussie and sterling rose against the yen from 129.35 to 130.95, 72.56 to 74.43 and 150.75to 153.02 respectively after the upbeat results from Intel.
Data to be released on Wednesday include Australia Westpac leading index, Japan Machine tools orders, BOJ rate decision, Switzerland retail sales, U.K. claimant count, ILO unemployment rate, eurozone, HICP data, U.S. CPI, industrial production. U.S. Treasury Secretary Tim Geithner will speak in Abu Dhabi at 05:30GMT