The U.S. Dollar weakened towards the end of Friday even though it managed to erase some of its losses a few days after foreign currency exchange traders were left wondering when the Federal Reserve will finally decide to raise the key cash rate. The central bank issued its decision stating that it will cut back the monthly bond purchases to $35 billion, and will maintain the interest rate near zero. The Fed offered no clues on when it may raise the borrowing costs, but explained that the jobs’ sector and inflation are two key areas that have shown progress. Janet Yellen, the central bank’s Chairwoman, indicated that the monetary authorities slashed their growth expectations for 2014 and predicted the economy could expand between 2.1 and 2.3 percent instead of the previously anticipated 2.8 to 3.0 percent. Mrs. Yellen added that recent metrics have offered sufficient evidence to support continued stimulus tapering. In the meantime, market traders have continued to monitor the crisis in Iraq. Many believe the U.S. could be pulled back into the situation, a possibility that may impact economic recovery. Speculation, together with uncertainty over the Fed’s interest rate decision, prompted Gold Prices to rally the most since April. Futures for August delivery climbed to $1,322.50 a troy ounce on the New York Mercantile Exchange before settling at $1,316.60.
The Euro traded mixed against the greenback as the latter fluctuated up and down subsequent to the Federal Reserve’s statement. The Euro benefitted from comments suggesting that the region’s economy is gaining momentum. According to the European Commission based out of Brussels, the E.U.’s economy may expand 1.2 percent in 2014, rather than the previously predicted 1.1 percent. The British Pound depreciated against the U.S. monetary unit despite the fact that traders were left wondering when the Federal Reserve could boost the borrowing costs. In the U.K., macroeconomic fundamentals revealed a hike in Public sector net borrowing. And the Swiss Franc dipped versus the greenback as the Swiss National Bank kept the benchmark interest rate close to zero and maintained the cap on the Euro rate, while reiterating that the Franc is still overvalued.
The Yen slipped against its U.S. peer as the Fed gave no indications when it could raise the key cash rate. But the Yen was somewhat supported as investors worried about the tensions in Iraq. In Japan, sources say that Prime Minister Shinzo Abe is awaiting evaluation of his economic plan, while economists continue to wonder whether Abenomics will provide the solution to the long-term deflation the Japanese nation has endured.
Lastly, in the South Pacific, the Australian Dollar strengthened versus the greenback as China’s government pledged to forge ahead with its growth measures, and vowed to do whatever is necessary to ensure the economy grows. The New Zealand Dollar also remained high days after the U.S. central bank opted for leaving the borrowing costs near zero.
EUR/USD- Commission Predicts More Growth
The EUR/USD traded up and down as the greenback gained and lost momentum following the Federal Reserve’s rate decision. The European Commission predicted that the region will experience higher growth levels than previously forecast, while recent data out of Germany showed a drop in Producer Price Inflation. According to analysts, upcoming data on Consumer Confidence could be the catalyst that prompts the Euro to rally. In other reports, Spain announced that its bonds dropped for a second week as investors believe that the European Central Bank’s measures were “overdone.” Bonds from other nations like Greece and Portugal have risen this year given that economic reports have suggested the debt crisis in the past.
GBP/USD- Sterling Slumps
The GBP/USD fell towards the end of last week even though the greenback was weighed on by the Fed’s rate decision. But the pair managed to trade above $1.7000 as speculators believe that the Bank of England could decide to boost the costs of borrowing money after all. On the data front, the U.K. announced a surge in the Public Sector net borrowing for May. The numbers came in at 11.48 billion Pounds, after printing at 9.00 billion Pound in the previous month. The metrics were somewhat better than predicted, as economists anticipated that net borrowing would show a hike to 12.0 billion Pounds. On Thursday, the U.K. stated that Retail Sales declined, but the Fed’s statement has weighed on the greenback, a factor that analysts say could prompt the British currency to resume its advance.
EUR/JPY- Tensions Prompt Modest Hike
The EUR/JPY rose slightly even though the markets opted for safe havens in light of the escalating violence in Iraq. Recent reports showed that the Bank of Japan has made slight modifications to its asset purchasing program. Analysts believe this move is aimed at showing the markets that the central bank is not willing to finance the nation’s debt; and it is the first step the bank has taken since implementing unprecedented easing measures. The central bank is currently purchasing enormous amounts of bonds, as well as other assets from financial institutions in hopes of flooding the market with liquidity and raising the inflation rate to 2 percent. The EUR/JPY retrieved slightly when U.S. President, Barack Obama announced plans to send advisers to Iraq, but the Yen showed no specific trend even after the Japanese Cabinet released its views about the economy. Cabinet members said that the economy is recovering at a moderate pace, and suggested that it could gain momentum despite the recent sales tax hike.
XAU/USD- Gold Futures Rally
The XAU/USD rallied last week, and reports show that the precious metal has appreciated 9.5 percent this year. Metal commodities like Gold climbed dramatically as the Federal Reserve announced it would leave the interest rate at the present low. The news prompted investors to seek alternate assets such as this one to hedge against inflation. The announcement caused the price of the shiny metal to surge 3.3 percent in the following trading session, and Futures for delivery in August jumped to $1,322.50 a troy ounce, the highest price in more than two months. Contracts settled at $1,316.60 an ounce on the Comex in the afternoon hours on Friday. According to experts, with the worsening of the situation in Iraq, market traders could seek harbor assets, a factor that may cause gold prices to extend gains.
Today’s Outlook
Today’s economic calendar shows that the Euro region will report on Services and Manufacturing PMI. The U.S. will issue Existing Home Sales. And in Japan, the central bank’s governor, Haruhiko Kuroda is expected to deliver a speech.