The U.S. Dollar remained strong against the majority of its Forex peers as demand for the American currency was supported by forecasts for an early increase of the benchmark interest rate. The Dollar touched a six-year high versus the Yen due to the divergence between the monetary policies of the Federal Reserve and the Bank of Japan. Meanwhile, economists have indicated that the weakness of the global economies has prompted a hike in oil supplies, and this has led to a drop in energy prices; gasoline prices in the U.S. have fallen by 0.24 cents since June. Furthermore, gains for 10-year Treasuries posted at 2.54 percent on Wednesday, while they were at 3.03 percent at the beginning of the year. These have printed lower due to the drop in interest rates in the Euro region. Analysts say that all these factors make the U.S. economy appealing for investors. They also believe that the world's biggest economy will sustain growth of approximately 3.5 percent in the year up to June of 2015. On the data front, Thursday's reports showed that Initial Jobless Claims surged to the highest level in ten weeks. These went up by 11,000 to 302,000 for the week that concluded on September 6th. Economists had forecast that the number of claims would drop by 4,000. Continuing Claims also jumped, dampening optimism about the progress of the labor sector.
Gold prices rebounded following U.S. President, Barack Obama's address to the nation. Mr. Obama indicated that the U.S. will continue with air strikes against ISIS militants; he added that these would be "systematic," and will be conducted inside Iraq as well as in Syria. He concluded his speech by stating that the U.S. counts with the support of its Middle Eastern allies, including Saudi Arabia. The "coalition of partners" will engage in a relentless plan against the Islamic militants. Futures for December delivery traded at $1,250.00 a troy ounce on the Comex during the European market hours. On Wednesday, the shiny commodity slipped to $1,244.50, a price not seen since the start of June.
The Euro remained weak against the U.S. Dollar, but it traded close to the highest level in three weeks against the Swiss Franc, a day after the Swiss National Bank announced that it may make policy changes such as implement negative interest rates to make certain the cap on the exchange rate remains in place. The SNB put a limit of 1.20 per Euro back in September of 2011 in an effort to avoid the possibility of deflation and a recession which could result from a fast depreciation of the Swiss Franc. The Franc has come very close to such limits in the past few days since the European Central Bank lowered the interest rate to a record low. The Swiss currency rallied about 0.9 percent versus the Euro in August, causing the SNB's governor, Thomas Jordan to reiterate the bank's intent to defend the ceiling placed on the pair. The British Pound rallied against the U.S. Dollar as worries over the Scottish Referendum dropped amid optimism the British economy is recovering steadily. The Sterling gathered momentum versus the majority of its counterparts after polls revealed that support for Scotland's independence has faltered. And it remained to the upside on speculations that today's economic reports will show growth in the construction sector.
The Yen rose slightly against the U.S. Dollar, but it has remained under pressure, days after Japan reported a 6.8 percent drop in Gross Domestic Product, denoting that the nation sustained the biggest contraction since 2011, when the country's economy was severely impacted by the earthquake and tsunami.
Lastly, the New Zealand Dollar fell to a seven-month low once the Reserve Bank published its decision to leave the key cash rate at the current level. Australia's Dollar traded steady against the greenback, rising slightly above a six-month low after solid data revealed that the employment sector created 121,000 payrolls in August, surpassing predictions for a hike of 12,000. The news also indicated that the Unemployment Level dipped to 6.1 percent after coming in at 6.4 percent in July. In addition, the Melbourne Institute revealed that Inflation Expectation for the next year climbed from 3.1 to 3.5 percent in the past month.
EUR/USD-Euro Remains Low
The EUR/USD continued to trade low as the market's participants are uncertain about what the FOMC will reveal next week. The economic calendar has been light, and most of the pair's direction has been driven by sentiment. A majority of traders are on the sidelines, waiting for the impact of the European Central Bank's rate cut to reveal itself. Christian Noyer, one of the bank's council members suggested that the rate decision managed to devalue the Euro, but the shared currency needs to drop further so that the bank could attain the inflation target. In an interview on Wednesday, Noyer stated that inflation needs to reach 2 percent, and for that to happen, the EUR/USD needs to be at a much lower level. The EUR/USD remained under pressure after the Euro-zone's leaders announced they'll implement new sanctions against Russia and will lay out a series of conditions that will trigger suspension of such sanctions. Several of the member nations are against such move and believe that added sanctions will only provoke Russia to break the cease-fire. Reports showing that U.S. Initial and Continuous Jobless Claims went up provided light support for the EUR/USD.
GBP/USD-Worries Over Scotland Ebb
The GBP/USD rallied on Thursday after a Poll showed that the increase in support for Scotland to gain its independence has dropped. In the meantime, economists in the U.K. have stated that the country's recovery has continued, and the British economy will survive whatever happens with Scotland. Analysts raised their growth outlook for the U.K. causing the GBP/USD to rally further. On the data front, House Prices in London climbed at the slowest rate in over three years in August, showing that the Real Estate sector is losing momentum. The Royal Institution of Chartered Surveyors revealed that last month's index fell to 9 after coming in at 11 in July. The gauge for the entire U.K. dipped from 48 to 40, the lowest level in twelve months. RICS suggested that the property market has cooled due to stricter lending measures and the possibility that the Bank of England could raise the borrowing costs. Properties outside of London are denoting more resilience because these regions have only began to recover economically.
NZD/USD-RBNZ Issues Rate Statement
The NZD/USD plunged to a seven-month low after the Reserve Bank of New Zealand indicated it will take a long pause before making changes to the costs of borrowing money. The announcement also indicated that the RBNZ expects the currency to weaken. Policy makers believe that a pause is needed for assessing the economy. Graeme Wheeler, the bank's Governor said that the rate will stay at 3.5 percent for an extended period of time. This is the highest rate in the developed countries. Analysts anticipate that the NZD/USD could fall further as inflationary pressures ebb in the domestic economy. Issuing comments about the decision, Mr. Wheeler said that a pause is wise as it will help the monetary authorities gauge the health of the economy before making policy adjustments.
EUR/JPY-More Stimulus Weighs On Yen
The EUR/JPY rose by a few pips on Thursday as the Yen declined on the possibility that the Bank of Japan could implement further easing. The second of Prime Minister, Shinzo Abe's fiscal stimulus measures has said to have contributed to the decline of the unemployment rate to 3.8 percent; sources also said that the ratio of employment opening for individuals has surpassed parity, while the Gross Domestic Product deflator contracted to near zero. Many economists are still concerned that the negative data for the second quarter will hurt inflation expectations and will therefore undermine the Prime Minister's program for bolstering growth. Meanwhile, the Bank of Japan has focused on the positive effects of their unprecedented monetary policies, and are trying to keep away from expanding stimulus. But other experts are of the opinion that the BOJ will have no choice but to add stimulus to fight a fall in inflation. Should it refrain from doing so in the near future, chances are the government will have to hold off from increasing the sales tax once again.
Today's Outlook
Today's economic calendar shows that Japan will report on Capacity Utilization and Industrial Production. The Euro region will issue Employment Change and Industrial Production. The U.K. will release the CB Leading Index. The U.S. will publish Core Retail Sales, Retail Sales, the Import and Export Price Indexes, Michigan Consumer Sentiment and Business Inventories.