The U.S. Dollar rose against several of its peers, but retreated from a seven-year high against the Yen, as the greenback continued to benefit from a recent bounty of positive economic reports. Speculators believe that the data may convince the Federal Reserve to consider boosting the benchmark interest rate. Gold went down to the lowest price in four years on Tuesday during subdued trading in the Forex. Bullion for immediate delivery reached $1,156.89 an ounce in London, and is trading at approximately 40 percent lower than in September of 2011. Analysts predict that the precious metal could slump below $1,000 in the middle of 2015. But on Wednesday, Gold Prices went up slightly; gains were rather limited as speculators believe that the U.S central bank will move up the timing for raising the key cash rate. Futures for December delivery rose to $1,164.60 a troy ounce on the Comex during the European trading session. In the previous day, contracts added 0.28 percent and settled at $1,163.00 an ounce.
In the Euro region, mixed economic fundamentals continued to worry investors. They're still digesting the less than stellar reports issued on Monday in which Italy divulged that its production levels have declined, and the nation could be entering into a period of recession. The Euro slipped versus the greenback after Eurostat confirmed a much lower than predicted increase in Industrial Production. It steadied versus the U.S. Dollar even after Germany reported that the wholesale Price Index posted disappointing numbers for the second time in three announcements. At this time, the markets are anxious about Friday's Gross Domestic Product reports, which are expected to reveal the seriousness of the crisis.
While the Euro region posted less than stellar fundamentals, the Swiss Franc rose against the shared currency, surpassing the central bank's exchange cap. Experts believe that anticipation over the upcoming "bullion referendum" may be causing the Franc's appreciation. The last time the Swiss Franc rose above the Euro beaching the limit set by the Swiss National Bank was months ago when the crisis between Russia and the Ukraine heated up, and tensions in the Middle East kept risk appetite down.
The British Pound weakened amid speculation that the Bank of England won't consider raising the borrowing costs soon. In its quarterly report, the central bank indicated that the economy won't expand as previously predicted, and it will take three years for inflation levels to rise to the 2 percent target. On Wednesday, the U.K. announced an increase in the Average Earnings, and surprised the markets as the numbers were actually higher than inflation for the first time since 2008, when the financial crisis dominated the headlines.
The Yen advanced against the U.S. Dollar as market traders assessed rumors that Prime Minister Shinzo Abe may move ahead with elections in December, while he deliberates on the timing for implementing another sale tax hike. Given the uncertainty, the Yen extended gains against the greenback, erasing some of its previous losses.
And Australia's Dollar slipped slightly against its U.S. counterpart despite upbeat macroeconomic fundamentals which showed that Consumer Sentiment improved this month, and Wages rose in the third quarter. The Aussie remained to the downside as demand for the U.S. Dollar remained strong. New Zealand's Dollar climbed versus the greenback even after the Reserve Bank's Governor, Graeme Wheeler stated that the currency's value is still "unjustified and unsustainable." Mr. Wheeler issued the statements after releasing the Financial Stability Report in which the policy makers declared that they won't ease on mortgage lending given that the boost in immigration has prompted an increase in housing demand. They added that this, together with low interest rates could heat up the real estate market again.
EUR/USD- Investors Await Friday
The EUR/USD dropped ahead of Friday's much anticipated reports on Gross Domestic Product. The statistics agency Eurostat said that the region's Industrial Production climbed less than forecast in September, highlighting the slowdown of the E.U.'s economy. The news showed that output surged by a seasonally modified 0.6 percent, not the anticipated 1.0 percent. In August, production slipped by 1.4 percent. Furthermore, the report indicated that on a year-over-year basis, the region's production activities ticked up 0.6 percent from the previous year, and did not drop 0.2 percent as many economists said it would. Other publications divulged that German Wholesale Price Index dipped to -0.6 percent, well below the predicted +0.2 percent. This was also the index's biggest fall since November of 2013. Despite concerns over the possibility that the German economy could collapse, the EUR/USD steadied later in the day. The output shown by the European factories was led by hike in machinery orders. But the recovery was minimal, and the releases divulged that there's been less buying of automobiles and items like televisions. Consumers are spending less on fears the recovery is failing.
GBP/USD- Inflation Could Rise In 3 Years
The GBP/USD slumped on Wednesday following the publication of the Bank of England's quarterly inflation report. The release showed that the governing council downgraded the economic expansion forecasts for the coming year and added that inflation is slated to slump below 1 percent in the next six months. The policy makers expressed their worries over the situation in the Euro region and cited it as one of the reasons for their outlook. Judging by comments from the bank's governor, Mark Carney, the central bank is not even close to considering an interest rate increase. Prior to the publication of the report, the GBP/USD rose as domestic announcements showed that Average Wages went up in October, catching the markets by surprise, since they climbed for the first time in five years. Analysts predict that speculators could shy away from the GBP/USD, especially since it's clear from Mr. Carney's tone of voice that the BOE is not going to boost the benchmark interest rate while the economy faces downward risks. If it increases the rate, it will do so after much consideration, and as the governor of the bank said, it will do so at a "moderate pace." Official news revealed that the yearly rate of inflation slipped to 1.2 percent in September, the lowest posting in five years, and this came about as a result of lower commodity prices and a loss of momentum in the world's economies. In regards to growth, the central bank stated that the British economy could expand 3.5 percent in 2014, and 2.9 percent in the year ahead. Policy makers lowered their growth expectations for 2015 from 3.1 percent.
USD/JPY- Abe Comments Prompt Uncertainty
The USD/JPY plunged on Wednesday as officials disregarded the possibility of a December election, and downplayed the likelihood that Prime Minister Shinzo Abe could dissolve Parliament as well as postpone any sales tax increase. The USD/JPY had rallied earlier when sources suggested that the Premier could delay raising the sales tax until 2017. But the currency pair slipped again as the markets awaited information on when the elections will be held. Sources say that Mr. Abe may decide on December 14 as the day for such event; and they believe that raising the sales tax in the coming year could be economic suicide for the country. Analysts anticipate that this would reduce chances for consumers to borrow money and would certainly have a serious impact on confidence.
NZD/USD- Dairy Exporter Issues Forecasts
The NZD/USD rose for a second day in a row after the Chairman of Fonterra Cooperative Group Ltd., the largest exporter of dairy products released his predictions for the coming year. The currency pair continued to trade strongly even though the governor of the central bank, Graeme Wheeler reiterated previous comments suggesting that the Kiwi is still overvalued, and its appreciation is "unjustified." The Reserve Bank published the Biannual Financial Stability Report, and in it, the policy makers signaled that they won't relax the current mortgage lending regulations as they fear that a surge in property purchases could bring about a mortgage bubble. While addressing Parliament, Mr. Wheeler stated that the monetary authorities plan to leave policy "stimulatory." On the data front, the government indicated that hotel and other lodging stays reached a record high for a September month as the number of visitors from abroad increased dramatically.
Today's Outlook
Today's economic calendar shows that China will report on Retail Sales, Industrial Production and Fixed Asset Investment. The Euro region will release data on German CPI, French Current Account and the ECB's Monthly Report. Switzerland will issue PPI. The U.S. will announce Initial and Continuing Jobless Claims as well as the Federal Budget Balance.