The U.S. Dollar came close to trading at the lowest rate in almost twelve months on speculation that the European Central Bank would add stimulus at the conclusion of its policy meeting. However, it rallied to the highest price in eight months against the Yen as investors waited for the U.S. to issue data on employment and the services sector. Speculators believe that positive reports could prompt the Federal Reserve to raise the key cash rate ahead of the expected time. Meanwhile, economists commented on the Beige Book by saying that it did not impress since it was not as positive about the pace of the U.S. economy as expected. Most of the details in the Beige Book regarding the economy denote that the recovery has only been "modest" in numerous parts of the country. It states that the only sector offering signs of solid progress in the U.S. is the automotive industry; and that consumers have spent less money. Analysts believe that the data could be weak due to the fact that today, most shopping is done on line, a factor that can prompt gauging errors. The July ISM Manufacturing numbers came in strongly, with the highest posting since December 2005. On Thursday, the ADP Non-Farm Payroll releases in the U.S. revealed that the private sector added 204,000 payrolls in the past month, below the expected 220,000. Other news denoted that Initial Unemployment Benefit Claims rose by 4,000 t0 302,000 in the week that concluded on August 30th; however, Continuing Claims reached the lowest level since mid-2007.
On the commodities front, Gold Prices remained more or less unchanged and slightly above an eleven-week low in London. The shiny metal was supported by the possibility that a drop in prices could increase demand. Bullion climbed 5.9 percent so far this year while the markets monitored the crises in several parts of the globe, and the Euro-zone's leaders discussed possible new sanctions against Russia. Physical demand for the commodity in the Far East helped gold rise slightly, adding 0.2 percent. Bullion for immediate delivery traded at $1,271.97 an ounce during the morning hours in London; and Futures for December delivery jumped to $1,272.60 a troy ounce on the Comex Division of the New York Mercantile Exchange. Gold prices fluctuated up and down following the European Central Bank's rate statement which indicated that the bank plans to engage in the purchase of asset-supported securities. Contracts for delivery in December slipped to $1,269.40 a troy ounce subsequent to the report.
In the Euro region, the Euro stabilized prior to the European Central Bank's meeting, but plummeted to a one-year low against the greenback. Three months after unveiling unprecedented stimulus measures, the central bank's President, Mario Draghi, suggested that added stimuli is needed to combat growing deflation risks and the negative impact that the situation with Russia could present. Following the ECB's announcement denoting that it will cut the main refinancing rate, Mario Draghi, the bank's President indicated that the Euro system will also buy a large portfolio of what he calls "transparent" securities. In a press conference in Frankfurt, Mr. Draghi explained that the commitment of more cash to the markets will help bolster an asset class that can help fund more loans and ease the burden of financial institutions. Mr. Draghi said that details of the asset purchasing program will be provided following October's policy meeting. The Euro extended losses once the bank revealed that it would also cut the deposit rate.
The Bank of England left the benchmark interest rate unchanged, citing consistent weaknesses in inflation and salary growth as the main reasons. The Sterling traded near a seven-month low against the U.S. Dollar. This decision comes two weeks ahead of the Scottish referendum, at which time the Nationalists are predicted to win. Analysts worry that a vote for independence could trigger new problems for the British economy; and this too, has supported the Bank of England's decision.
In Japan, the central bank also concluded its policy meeting. The Yen depreciated against all of its Forex counterparts after the bank's governor, Haruhiko Kuroda intimated that a strong greenback is not negative for Japan. In a unanimous vote, policy makers agreed to leave policy unchanged. Most monetary authorities are optimistic about the outlook of the Japanese economy.
And the Australian Dollar retreated from the highest level in five days against the greenback. The Aussie went up in the early hours of the day upon the release of solid data showing that the Trade Deficit contracted in August and Retail Sales climbed. New Zealand's Dollar remained above a six-month low against its U.S. peer as market traders awaited the announcement of key economic reports out of the U.S. The Kiwi had gained on Wednesday when sources suggested that the conflict between Russia and the Ukraine could be coming to an end.
EUR/USD-ECB Surprised The Markets
The EUR/USD slumped following the decision of the European Central. The announcement surprised the markets as they did not anticipate that policy makers would reduce the interest rates across the region. The central bank cut the key cash rate from 0.15 to a record low of 0.05 percent; it also slashed the deposit facility rate from -0.10 to
-0.20 and the marginal lending rate from 0.40 to 0.30 percent. At this point, investors look ahead to ECB President, Mario Draghi's press conference to gain better understanding on the decision which came days after the E.U. reported that yearly inflation slowed to a five-year low. The EUR/USD plunged below $1.3000 for the first time since summer of 2013 after the bank's President stated that the ECB will invest in a "broad portfolio" of securities backed by assets commencing next month. This, he said, will have a huge impact on the bank's balance sheet.
GBP/USD-Carney Cites Weak Inflation
The GBP/USD continued trading close to the lowest level in seven months once the Bank of England announced it will not raise the costs of borrowing money at this time. The central bank left the benchmark interest rate at 0.5 percent, and the asset purchasing program at 375 billion Pounds. The Minutes, which are due out in two weeks will reveal how the members voted. In the meantime, Mark Carney, the bank's governor stated that the current "economic circumstances" failed to provide support for a rate hike. Policy makers worry that early tightening could be negative for the British economic recovery. Economists agree that wages continue to be a major source for concern, along with inflation; and market traders worry that a Scottish independence could prompt the Sterling to decline further. The GBP/USD touched the lowest rate since February, and volatility this week surged by the most in close to six years. Mr. Carney added that although the economy expanded 0.8 percent in each of the prior quarters, weak salary growth and the absence of inflation pressures support the bank's decision. Data issued recently revealed that consumer price inflation dipped to 1.6 percent in July, a seventh month beneath the target 2 percent. Furthermore, the index which gauges factory output denoted a slowdown, perhaps the biggest in over one year.
USD/JPY- Monetary Easing Left Unchanged
The USD/JPY rallied after the Bank of Japan announced that it will leave the record stimulus measures in place as these are aimed at bolstering inflation and fueling the economy's momentum. The bank said that it will continue to increase the monetary base at a yearly pace of 60 to 70 trillion Yen. Haruhiko Kuroda, the central bank's governor indicated that the weakness of the Japanese currency will help support the economy, especially since the sales tax hike has impacted the economy, worse than the earthquake and tsunami of 2011. Mr. Kuroda added that investments in housing have continued to decline, and production is still sluggish. The bank would like to see the Yen at a weaker level in order to attain its inflation goal. In concluding his statement, Mr. Kuroda said that while salaries climbed 2.6 percent in July from the previous year, inflation was at 3.4 percent, a factor that has hurt consumer purchasing power. He predicts that inflation will rise by the end of 2014 and households will provide signs of progress.
AUD/USD-Trade Shortfall Narrows
The AUD/USD advanced after reports showed a hike in Retail Sales, and the Trade releases confirmed a surge in exports. The Australian Bureau of Statistics stated that Retail Sales rose by 0.4 percent in July, led by bigger volumes of sales in restaurants, cafes and department stores. Sales, however, declined in the Western parts of the country. In addition the Trade Deficit narrowed to AUD$1.36 billion last month, while economists anticipated it would come in at AUD$1.51 billion after posting at AUD$1.56 billion in July. The announcement revealed that exports climbed 1.0 percent, while imports stagnated.
Today's Outlook
Today's economic calendar shows that the Euro region will issue GDP. The U.S. will release the Non-Farm Payrolls, Private Non-Farm Payrolls, and the Unemployment Rate.