The U.S. Dollar climbed to a one-week high versus the Euro, and strengthened against the majority of its Forex peers as investors boosted predictions for an interest rate hike, given the latest announcements signaling an improvement in the U.S. Employment sector. The greenback rallied versus most of the majors on optimism that the world’s largest economy has shown concrete signs of improvement. Many market strategists anticipate that the Federal Reserve could boost the benchmark interest rate in the third quarter of next year. This week, the central bank will publish the minutes from the last monetary policy meeting which will likely reveal a decision by the monetary authorities to trim stimulus and leave the borrowing costs near zero to 0.25 percent to fuel economic growth. They may also offer insight into a discussion on strategies aimed at ensuring the balance sheet shrinks. Elsewhere in the Forex, Gold Prices extended losses after reaching the highest price in three months, as the outlook for an increase of the key cash rate helped boost the value of the greenback. The shiny metal was also impacted by comments issued by Christine Lagarde, Director of the International Monetary Fund. Mrs. Lagarde suggested that the U.S. economy could pick up momentum even though the IMF thinks the opposite and may reduce the global growth forecasts. Bullion for immediate delivery dropped 0.5 percent and traded at $1,314.38 an ounce in London; and Contracts for delivery in August slipped 0.4 percent to $1,314.90 a troy ounce on the New York Mercantile Exchange. The World Gold Council hosted an industry gathering in London, during which officials discussed the possibility of changing the 100-year old fixing benchmark that is utilized by the mining companies and central banks to trade and provide a value for the commodity.
The Euro dipped to the lowest rate in over one week against the greenback as the volume in the market remained light after the U.S. holiday weekend. The Euro remained under pressure following comments by the European Central Bank’s Vice-President, Benoit Coeure, who reiterated that the key cash rate would be left at the current record low for quite some time. Mr. Coeure explained that this will help the Euro region achieve economic stability. On the data front, Germany released news indicating a decline in Industrial Production in May, and the Sentix Index which gauges business confidence in the E.U. showed an improvement for June. The British Pound edged to the downside but remained strong against the U.S. Dollar on the likelihood the Bank of England may reconsider its decision not to raise the borrowing costs. Sources say that the Sterling has risen dramatically since the start of 2014, and has earned over 15 percent on the possibility that the economic recovery could prompt the central bank to boost the key cash rate.
The Yen inched lower against the greenback given last week’s employment data out of the U.S. Today, the Bank of Japan will report on the Current Account, a factor that could shift the trend of the Japanese currency.
Lastly, in the South Pacific, the Australian Dollar declined versus the greenback even though domestic news indicated that Job Advertisements went up, and the Housing Construction index revealed a hike for the month of June. In New Zealand, the news was not as positive as it indicated a plunge in Industrial Production.
EUR/USD- Industrial Production Dips
The EUR/USD weakened as official announcements out of Germany, the region’s largest economy, showed that Industrial Production declined 1.8 percent in May; this was the third drop in a row. The reports raised speculation that the Euro-zone’s economy is not recovering as expected. Other news revealed that the Sentix index, which measures Investor Sentiment for the overall region climbed this month. The announcement showed that the uptick in confidence was mostly due to the newly implemented measures by the European Central Bank to fight low levels of inflation and improve growth. Some economists criticized Mario Draghi’s plan to put an end to the credit drought. Mr. Draghi, who is the President of the European Central Bank revealed the bank’s plan to loan as much as one trillion Euros to the region’s banks at cheap rates, in order to spur lending and bolster the economy. However, many believe this plan won’t work as well as anticipated. Mr. Draghi has indicated that weakness in lending has posed obstacles for the Euro area to fully recover.
GBP/USD- Sterling Drops On Speculation Over Fed Move
The GBP/USD declined on Monday as market traders speculated over whether the Federal Reserve could raise the interest rate earlier than anticipated. The pair also fell as the Commodity Futures Trading Commission revealed that speculators were the most bullish on the Pound since 2007. However, the GBP/USD remained supported as several business surveys showed that the British economy is still improving, and has sustained further expansion in the months of April through June.
AUD/USD- Construction Index Posts Higher
The AUD/USD slipped to the downside on Monday even though the South Pacific nation announced that the Housing Construction Index surged 5.1 points and posted at 51.8, denoting that it is now in the expansion territory, after it came in at 46.7 in the month of May. Further news indicated that Job Advertisements jumped 4.3 percent, up from the previously announced 5.7 percent drop in May. In the past week, the governor of the Reserve Bank, Glenn Stevens stated that the Aussie was too high and this did not help the economy. Analysts predict that the AUD/USD could reverse losses following releases out of China, which are expected to be issued tomorrow.
EUR/JPY- Pair Trades Flat
The EUR/JPY traded flat on Monday as there were no economic fundamentals out of Asia, and the EUR dipped upon the release of lackluster Industrial Output data out of Germany. The Yen received slight support as the equities markets rose on Monday after the weakening of the Yen prompted some buying. However, traders remained cautious after Wall Street returned from a long holiday weekend, and the Federal Reserve is about to publish the minutes from the last policy meeting.
Today’s Outlook
Today’s economic calendar shows that Japan will report on the Economy Watchers Current Index. Switzerland will issue the Trade Balance. The U.K. will announce Industrial and Manufacturing Production as well as the NIESR GDP Estimate. Australia will provide data on Westpac Consumer Sentiment. And China will release the CPI and PPI.