The U.S. Dollar advanced dramatically against the majority of its Forex counterparts, days after the Federal Reserve indicated that monetary authorities may opt for raising the key cash rate should the economy offer signs of quick and solid improvement. The greenback was supported by comments from several Fed officials, who indicated their surprise at the latest jobs data. In the days ahead, the U.S. will provide further insight into the health of its economy by posting reports on consumer prices, manufacturing and home sales. Money market traders remained cautious subsequent to news confirming that a Malaysian Flight departing Amsterdam was shot down while flying close to the border with Russia. President Barack Obama indicated that this was not a random accident, but more than likely, the act of terrorism. A number of currencies declined against the U.S. Dollar while the Ukraine and Russia passed the blame to each other for the downing of the jet. Risk appetite was mixed in the past days, as investors kept an eye on the developments of the investigation and on the crisis which has escalated between Israel and Gaza. Gold prices were also impacted by the recent events. The precious commodity declined on the possibility that the Federal Reserve may raise the borrowing costs, and on worries over the multiple crises which appear to be escalating in several places around the globe. Bullion has risen 8.9 percent so far, especially since risk appetite has ebbed in the foreign exchange. Gold sustained the first weekly depreciation once the Federal Reserve pointed to the possibility of a rate hike; and as the greenback touched the highest rate in one month against the majority of its peers. Futures for delivery in August traded at $1,309.40 a troy ounce during the afternoon hours of Friday on the New York Mercantile Exchange.
The Euro plunged below $1.3500, something not seen since February, and it also depreciated against the Yen as investors have grown concerned that the Euro region may not be recovering as expected; and as the Bank of Italy reduced its growth prospects for 2014 from 0.7 to 0.2 percent and indicated that the risks to the economy remain real. The Euro, like many other Forex majors was impacted by geopolitical tensions and a higher demand for safe havens. The British Pound extended gains against the Euro following stellar Inflation releases out of the U.K., while the Euro was further impacted by news denoting that Inflation in the E.U. remained unchanged.
The Yen dipped against the U.S. Dollar after touching a one-week low when risk aversion dominated sentiment in the market. The Yen advanced quickly on Friday upon reports that a Malaysian Airliner was downed by what many believed to be an act of terrorism; and as the U.S and the Euro-zone announced the imposition of stringent economic sanctions against key Russian businesses and individuals.
Lastly, in the South Pacific, Australia’s Dollar climbed to more than a one-week high versus the greenback subsequent to Friday’s news which showed that U.S. Consumer Confidence dipped to the lowest level in four months, missing forecasts for a hike; it slipped to the downside as risk aversion increased following news that 298 people died onboard a Malaysian flight, downed by a surface to air missile. New Zealand’s Dollar dipped to the lowest level in four weeks on expectations the Federal Reserve may raise borrowing costs now that the employment sector is showing signs of improvement, and as the markets remained unsettled after Israel stepped up its ground incursion against Gaza.
EUR/USD- Inflation Stagnates
The EUR/USD declined as a number of crises around the globe overshadowed the subdued economic calendar, and the fact that the economy may not be recovering as anticipated. The downing of a Malaysian flight and the war between Israel and Gaza dominated the headlines worldwide. The EUR/USD dipped below $1.3500 on Friday for the first time since the month of February on the likelihood that the U.S. central bank may lift the borrowing costs, and remained to the downside after the Bank of Italy announced that the nation’s economy may not expand as much as previously reported. Officials from the bank said that the economy may only grow 0.2 percent, rather than 0.7 percent, and warned that the region is still facing serious risks.
GBP/USD- Rate Of Inflation Quickens
The announcement about the Malaysian flight which was shot down as it flew close to the Russian border has shaken the money market and dominated risk appetite. The news prompted the GBP/USD to decline. The pair had started the week strongly, on what appeared to be good news out of Portugal, when its second largest lender revealed that it will be able to meet its fiscal obligations. And when the Consumer Price Index surpassed forecasts, the Sterling sustained a further rally. The releases showed a hike of 1.9 percent, while economists predicted CPI would come in lower. The news caused the GBP/USD to sustain major gains, and reach the highest price since October of 2008. Analysts say that the pair’s uptick was mostly due to speculation that the Bank of England could raise the borrowing costs. However, its rise was short-lived because the U.K. revealed that salaries declined from 0.9 to 0.7 percent. The depreciation of the pair was exacerbated by geopolitical tensions and the fact that the U.S. Dollar strengthened on the possibility the Federal Reserve may raise the key cash rate. This week, all eyes will be on the Bank of England as it’s scheduled to issue the minutes from the recent monetary policy meeting.
USD/JPY- BOJ Decisions Fails To Set Trend
The USD/JPY rose after remaining to the downside for most of the week. Its fluctuations were somewhat limited as speculators waited for the Bank of Japan to publish its monetary policy decision. And when it announced no changes in stimulus, market traders who expected the news to set the pair’s trend were disappointed. The USD/JPY was mostly impacted by statements issued by the Janet Yellen, who offered bullish comments about the economy, thereby bolstering the chances for a rate hike. The pair traded range-bound as risk appetite was mixed while the tensions between Israel and Gaza, the Ukraine and Russia intensified. In the days to come, Japan will report on the Trade Balance. Many analysts predict it will show a decline of the deficit. The Japanese markets are closed today due to a National Holiday.
AUD/USD- Chinese Data Helps Aussie
The AUD/USD rallied and remained supported days after China reported that its Gross Domestic Product showed that the economy expanded 7.5 percent. The pair traded flat after the downing of Malaysian flight 17, and as the markets wait for the South Pacific nation to report on Consumer Price Inflation this week. The AUD/USD strengthened on Friday after the U.S. announced that Consumer Sentiment declined, and the index which measures confidence came in at 81.3 after touching 82.5 in June. Metrics published by the Commodities Futures Trading Commission indicated that market traders raised speculation that the Aussie could continue to advance.
Today’s Outlook
Today’s economic calendar is extremely light; it shows that Japan’s markets are closed for a national holiday. The Euro region will report on Italian Industrial New Orders and German PPI.