The U.S. dollar slipped against a number of Forex majors as the international financial markets returned from the extended Easter holiday. However, it advanced to a 14-month high against the Chinese yuan as the People’s Bank of China decide to step in and fix the rate for a third time. According to officials the move was aimed at preventing investors from speculating on the yuan’s appreciation. China’s government has received much criticism for intervening, and a few months ago, the U.S. suggested that the PBOC ought to allow market forces to determine the value of the yuan. However, Beijing responded by indicating that the yuan was inching closer to “fair-market value.” On the data front, U.S. announcements by the Federal Housing Finance Agency confirmed that House Prices surged 0.6 percent, which is more than anticipated. Other news revealed that Existing Home Sales fell from 4.60 million to 4.59 million units last month. Gold Prices neared the lowest value in over two weeks as speculators grew concerned that the crisis in the Ukraine could escalate into a full blown civil war. The shiny metal remained supported on signs the U.S. economy is recovering. Reports issued on Monday denoted that the Conference Board’s Index of Leading Indicators climbed the most in sixteen weeks, prompting speculation that the Federal Reserve could reduce monetary easing. With reports showing that an agreement reached in Geneva slated to ease tensions between Moscow and Kiev has fallen apart, futures for June delivery slipped to $1,290.70 a troy ounce in the morning hours on the Comex. And Futures for immediate delivery traded at $1,290.94 in London.
The euro climbed versus the U.S. dollar, though its advance was limited as the european Central Bank reiterated that the currency’s appreciation could continue to impact Inflation. Recent announcements indicated that the region’s Inflation is at 0.5 percent, the lowest in almost five years. ECB board member Benoit Coeure suggested that the central bank could reduce the costs of borrowing money as a means to loosen policy. Mr. Coeure agreed that the euro’s hike has hurt the E.U.’s level of Inflation. Analysts predict that the Purchasing Manager’s index may provide signs of growth, even if the expansion in several sectors has been the slowest in years. The British pound sustained major gains against the euro and the U.S. dollar as market traders look ahead to the release of the Bank of England’s minutes, which are expected to show that policy makers are willing to raise the benchmark interest rate as the economy has shown remarkable improvement.
The yen erased losses against the greenback as China’s biggest Asset Manager stated that the bad loan ratio surged during the initial quarter of 2014, thereby spurred speculation that the Chinese government will take steps to prevent the problem from escalating. The People’s Bank of China reduced the yuan’s reference rate by 0.03 percent.
The Australian dollar gained as investors await the publication of the Consumer Price Index which is expected to show a hike in prices. New Zealand’s currency also strengthened versus the greenback as market traders awaited the publication of key U.S. economic fundamentals subsequent to the long holiday weekend.
EUR/USD: Euro Up Despite Warnings
The EUR/USD gained on Tuesday while the financial markets returned to normal operating hours subsequent to the long Easter holiday. Meanwhile, sources say that Mario Draghi, the President of the european Central Bank, is considering expanding stimulus, but will look at upcoming data for clues on whether the region really needs added easing or not. Central bank officials are concerned that the crisis in the Ukraine could have a negative impact on the euro-zone’s economy, especially as it appears that a civil war in the Ukraine could be imminent. Leaders are hoping the U.S. will step in with tougher sanctions for Russia. The EUR/USD climbed even though several board members expressed concern over the fact that the currency’s appreciation could continue to weigh on inflation. Sources say that the ECB is still looking at unconventional means to stave deflationary pressures, including purchasing sovereign bonds.
GBP/USD: Linkers Return High Revenues
The GBP/USD rallied on Tuesday as market traders await the publication of the Bank of England’s minutes from its most recent policy meeting, which may show that policy makers are contemplating raising the interest rate sooner than planned. Meanwhile, Linkers, securities aimed at protecting investors from sustaining losses due to shifts in the costs of living, provided gains of 4.7 percent this year, while U.S. Treasuries only returned 3.1 percent. Economists stated that the U.K. is not concerned about deflation, as the level of inflation stands at 1.6 percent. Investors predict that with a drop in unemployment, central bank governor Mark Carney could make a case for increasing the key cash rate, which now stands at a record 0.5 percent low.
AUD/USD: Aussie Up Before CPI
The AUD/USD advanced, and it could continue to rally as risk appetite improves on signs that the U.S. economy is still gathering momentum. Speculators await the South Pacific nation to publish CPI, although it’s not expected to show changes. However, there are economists who believe that the Australian consumer price index may surprise the markets by posting a hike. Such speculation supported the AUD/USD. Analysts say that if this is the case, it’s likely that the Reserve Bank could try to counteract the Aussie’s appreciation with some bullish rhetoric.
USD/JPY: Yen’s Losses Come To A Halt
The USD/JPY fell on Tuesday after China’s Huarong Asset Management firm announced that the percentage of bad loans rose in the first quarter of 2014, while the environment in the business sector remained “grim and complicated.” The USD/JPY declined as risk appetite appeared to ebb in the market, even as the perception is that China won’t allow the news to derail its efforts to boost the economy. The yen was supported despite news out of the U.S. indicating that House Prices climbed 0.6 percent in February, surpassing predictions for a 0.5 percent jump.
Daily Outlook: Today’s economic calendar shows that the euro region will report on Services and Manufacturing PMI The U.K. will issue the minutes from the last Monetary Policy Meeting, and will publish data on Public Sector Net Borrowing as well as on CBI Industrial Trends Orders. The U.S. will announce New Home Sales, Manufacturing PMI. New Zealand will reveal the Interest Rate Decision and the RBNZ Rate Statement.