The U.S. Dollar advanced against the majority of its peers on speculation that the country will be able to withstand a global economic slowdown. The greenback remained strong as safe haven demand continued to dominate market sentiment. Concern over the increasing Ebola epidemic have contributed to a decline in risk appetite, especially as the U.K. Health Secretary indicated that the virus may be diagnosed in the United Kingdom by the end of this year.
The greenback pared Monday's drop which was caused by comments by Federal Reserve officials who said that a delay in boosting the benchmark interest rate may be necessary should the global economic slowdown have an impact on U.S. growth.
Gold made little change on Tuesday as worries over global economic slowdown bolstered demand for harbor assets. However, the vast majority of analysts say that a further decline in oil prices could help curb inflation levels, and at the same time reduce the appeal for the shiny commodity. But for now, it's likely that gold may extend gains since there's uncertainty as to when the Federal Reserve could raise the borrowing costs. Contracts for December delivery surged to $1,236.10 a troy ounce during the morning hours in New York. And Bullion for immediate delivery fluctuated slightly, remaining near $1,235.81 an ounce in London.
The Euro dipped to a session low versus the greenback, giving up any gains earned on Monday. Dismal macroeconomic fundamentals out of Germany denoting a big drop in confidence suggested that the region's situation may be worsening. In addition, Industrial Output declined, adding to an already high level of pessimism in the E.U. Other news indicated that European equities fell as the currency depreciated amid signs the world economies are losing momentum. A drop in Greek bonds contributed to yields advancing to the highest level in almost seven months.
The British Pound erased gains versus the U.S. Dollar and weakened against most of the majors on Inflation metrics which toppled to the lowest rate in five years. The data increased the likelihood that the Bank of England may leave the key cash rate at the present record low. Other releases were just as disappointing, as they denoted a plunge in Retail Sales.
According to trading experts, the Yen is sustaining a correction and may be in a dovish reversal. The Yen traded lower against the U.S. Dollar even after domestic announcements pointed to a rise in CGPI. Additional news showed that Japanese speculators are investing their capital abroad, mainly in Australia, as they consider it a high-yielding market. The Yen rallied as the markets look forward to Thursday, when several Federal Reserve officials will deliver speeches at a number of venues.
Lastly, the Australian Dollar rebounded against the greenback despite the release of the NAB Business report. The Aussie appears to be slowly regaining its footing since China issued positive metrics denoting improvement in exports and imports.
EUR/USD- Euro Plummets Further
The EUR/USD extended its decline subsequent to the release of soft reports which highlighted the fact that the Euro region's economy has lost momentum. For starters, the ZEW Centre for Economic Research stated that Germany's Index on Economic Confidence came in lower than in September, with a reading of -3.6, after posting at 6.9. For the Euro-zone, the Sentiment Index dropped to 4.1 from 14.2, reflecting a substantial decline. Additional releases divulged that production in the Industrial sector fell 1.6 percent, and on a yearly basis, it plunged 1.9 percent in August. Economists believe that the latest data may place added pressure on the European Central Bank. But this institution is already facing scrutiny as the European Judicial Court is assessing whether the plan to purchase debt from stressed Euro-zone countries is by any means a way of overstepping its boundaries. Mario Draghi, who heads the central bank said that he would do whatever it took to ensure the Euro doesn't collapse. But one of the lawyers speaking before the high court suggested that the reductions in interest rates made between 2011 and 2012 had little effect on the Euro-zone's economy. He concluded by suggesting that price stability is in jeopardy due to concerns that the shared currency could collapse.
GBP/USD- Inflation Cools
The GBP/USD declined on news revealing that Inflation posted the lowest reading in five years. Official reports divulged that annual Consumer Price Inflation dipped to 1.2 percent in September, showing that prices have stayed below the central bank's inflation target for nine months. Furthermore, the British Retail Consortium announced that to everyone's surprise, Retail Sales slowed 2.1 percent in the past year up until September. Economists believe that the drop in inflation could provide the Bank of England with scope to maintain the benchmark interest rate at the current levels for some time to come. They explain that price growth was severely impacted by the declining oil prices and an overvalued Sterling which reduced the price of imports. Core Consumer Prices, not including volatile items such as food dipped a yearly 1.4 percent last month, the most since 2002. The Statistics Office indicated that another explanation for the slowdown in inflation may have to do with supermarket competition and the rally of the GBP/USD.
USD/JPY- Investors Go Abroad
The USD/JPY traded mixed, but the Yen gained strength as market traders sought out safe havens on fears over the potential spreading of the Ebola virus. On the data front, Japan reported a drop of 0.1 percent for Producer Prices, bringing the annual rate down to 3.5 percent. The USD/JPY slipped to a four-week low as investors are growing concerned about the outlook for the global economies, especially as the International Monetary Fund reduced its forecasts for growth for this year and the next. The IMF also suggested that the economies may not reach the level of growth attained prior to the economic crisis of 2008.
AUD/USD- Business Survey Disappoints
The AUD/USD rallied as the Australian currency remained supported by previous economic news out of China revealing an increase in imports and exports. However, on the domestic front, the South Pacific nation indicated that the NAB Business Confidence survey pointed to a drop from +7 to +5 in the month of September. The survey also denoted that Business Conditions slipped from +3 to +1. Analysts say that the strength of the AUD/USD concerns Reserve Bank officials. Guy Debelle, the Assistant Governor for the central bank suggested that the value of the currency is not accurately reflecting the fundamentals. Mr. Debelle intimated that a weaker Aussie will help the economy achieve a proper balance.
Today's Outlook
Today's economic calendar shows that Japan will report on Capacity Utilization and Industrial Production. The U.K. will publish Claimant Count Change, the Unemployment Rate and Average Earnings. The U.S. will release PPI, Core PPI, Retail Sales, Core Retail Sales, NY Empire State Manufacturing Index, Federal Budget Balance and the Beige Book. New Zealand will announce Business NZ PMI. And in the Euro region, Mario Draghi, the President of the European Central Bank will deliver a speech.