The U.S. Dollar extended gains against the majority of its Forex peers on speculation that the Federal Reserve could decide to raise the benchmark interest rate at an earlier time than expected. In addition, the central bank is anticipated to conclude the asset buying program by October. Speculation was supported by comments from the Federal Reserve of San Francisco's policy member who revealed that a study points to the likelihood the rates could be boosted in early 2015. The latest string of economic announcements have signaled that the economy is sustaining a solid recovery, though the employment sector remains sluggish. On Friday, the Non-Farm Payroll metrics left much to be desired as they showed that employers also created 142,000 jobs, the lowest level since the beginning of 2014. The data took the markets by surprise as most investors predicted the numbers would come in showing the creation of at least 225,000 payrolls. Meanwhile, as the greenback extended its rally, Gold Prices plunged to a three month low. The precious commodity slipped to $1,555.40 a troy ounce on the New York Mercantile Exchange, during the European trading hours.
In the Euro region, Tuesday was another quiet day. The shared currency fell below $1.2900 for the first time since summer of 2013. On Monday, Germany opened strongly, indicating that the Trade Surplus increased from 16.2 to 22.2 billion Euros, surpassing forecasts for it to widen to 17.3 billion. The solid metrics followed last week's reports which confirmed that Manufacturing activities increased. The European Central Bank has not revealed the details of its plans for more stimulus. Analysts believe that ECB President Mario Draghi is using every possible tool available to ensure deflation doesn't become a permanent problem, and the region begins to show growth. The British Pound catapulted versus its U.S. counterpart as the Scottish referendum approaches. The likelihood that Scotland could break away from the U.K. has already caused the Sterling to erase prior gains and it's predicted to prompt its further decline. Data provided on Tuesday revealed that the Trade Balance posted a deficit, but Manufacturing Production increased in July. The Swiss Franc was also impacted by speculation that the Federal Reserve may boost the main interest rate earlier than expected, and it remained near a 12-month low versus the greenback.
The Yen plummeted to the lowest price in six years against its U.S. counterpart following the increase of Treasury yields, and on the release of the policy meeting minutes by the Bank of Japan.
And the Australian Dollar remained weak against its U.S. peer despite positive data which showed a rally in Business Confidence; the numbers were positive, and although they signaled improvement, they still missed expectations. The Aussie was also weighed down by a drop in Iron Ore prices and the fact that further drops could have a seriously negative effect on the mining industry. New Zealand's Dollar hovered close to a seven-month low versus the greenback as the latter remained supported by the likelihood of an earlier cash rate hike.
EUR/USD- Shared Currency Hovers At 14-Month Low
The EUR/USD continued to trade near the lowest rate in 14 months due to the divergence between the policies of the Federal Reserve and the European Central Bank. The EUR/USD remained under pressure as market traders boosted optimism that the Federal Reserve could take into account the bounty of positive data issued lately out of the U.S. to plan for a rate hike by summer of 2015 or sooner. The pair extended its decline as the markets showed an insatiable appetite for the U.S. currency despite Friday's disappointing Non-Farm Payroll announcement. Analysts say that even though there is not much in terms of economic fundamentals out of the U.S. for the remainder of the week, the fact that the U.S. is maintaining economic superiority against several of the regions around the globe is contributing to the Dollar's appeal.
GBP/USD- Concern Over Independence Increase
The GBP/USD fell over 1.3 percent on Monday; and while the drop doesn't appear to be dramatic, the pair has erased over 3 percent of its value since the start of September. The GBP/USD is now at the lowest level since November. Economists say that the European Central Bank's decision to cut the borrowing costs has given the Bank of England an excuse to refrain from raising its key cash rate. However, the pair continues to be under pressure as the possibility of a Scottish Independence could become a reality. Analysts say that breaking from the U.K. could endanger the Scottish economy; but it may also have a negative impact on the British economy as most oil reserves lie within the Scottish borders. Many anticipate that a vast number of Scotland's businesses could move to England. Uncertainty over how the assets will be distributed between Scotland and England are causing Forex traders to grow weary. On the data front, the official reports out of the U.K. denoted that Manufacturing activities went up 0.3 percent in July, but the Trade Deficit widened to 10.19 billion Pounds in the same month. The deficit had printed at 9.41 billion Pounds in the previous month.
USD/JPY- Bad Weather Hurt Spending
The USD/JPY extended gains before Japan released important economic reports and the minutes from the last policy meeting. Data issued on Tuesday showed that confidence among workers fell in the past month because of continued rains and typhoons that kept consumers from spending money. On the positive side, the Japanese Current Account posted in the black in July, reaching 416.7 billion Yen for the first time in two months. The hike resulted from an influx of foreign investments. Sources say that Shinzo Abe, the country's Prime Minister needs for the Yen to stay weak in order to accomplish his economic goals. Mr. Abe replaced the majority of his Ministers, but these new officials are said to be facing the same challenges. While the economy appears to be emerging from deflation, the aging population may prevent the economy from showing sustained growth. Economists predict that the economy may even end up with stagflation.
AUD/USD- Business Sentiment Hurts Aussie
The AUD/USD depreciated as the announcement of less than stellar news out of Australia impacted the Aussie Dollar. In releases by the National Australia Bank, the index which measures Business Confidence showed a drop to 8 in August, after printing at 11 in July. Other reports indicated that loans to purchase homes surged 0.3 percent, not the anticipated 1.0 percent. In the meantime, on the commodity's front, iron ore prices continued to fall, raising concerns over the future of the mining sector. The AUD/USD was also influenced by news out of China which pointed to weakness in imports. China's economy has shown improvement, and exports have risen 9.4 percent from the prior year. However, imports dropped 2.4 percent.
Today's Outlook
Today's economic calendar reveals that New Zealand will issue the Interest Rate Decision and the RBNZ's Monetary Policy Statement. The U.K. will publish the RICS House Price Index. Japan will provide data on Foreign Bonds Buying. Australia will announce Employment Change, the Unemployment Rate and the Participation Rate. Lastly, China will report on CPI and PPI.