The U.S. Dollar continued to trade strongly against a few of its Forex counterparts as data provided evidence that the economy is improving. Given the recent string of fundamentals, analysts believe that the greenback may reach higher levels than it did in 2009. The U.S. currency rose on Wednesday after the Labor Department announced that consumer prices surged in the month of September, denoting that the economy has not lost momentum despite a global slowdown. However, the greenback depreciated versus the Euro after Euro region's reports took investors by surprise, offering data that denotes improvement in manufacturing activities. The U.S. currency remained little changed after the Department of Labor announced that the number of individuals who filed for Jobless Claims in the week that concluded on October 18 went up by 17,000 to 283,000. The numbers were disappointing since analysts predicted that the benefit claims would only surge by 16,000.
Gold Prices went down as market traders waited for the U.S. to issue the employment metrics for the past week in order to obtain clues on the health of the economy, and assess whether the numbers provide support for an interest rate increase. Futures for December delivery traded at $1,239.80 a troy ounce during the European market hours.
The Euro traded mixed on speculation that the European Central Bank may implement further stimulus in the near future. To everyone's surprise, the reports issued on Thursday showed growth in the Manufacturing sector. In addition, Spain announced that its economy is providing signs of progress, and the rate of joblessness fell in the third quarter to the lowest level in three years. Germany, the Euro-zone's biggest economy also offered good news indicating that its factories recovered after sustaining major declines in production. Analysts say that while the outstanding releases helped the Euro's rally, the Purchasing Manager's reports pointed to weaknesses in many areas. They divulged that demand has gone down, and that countries like France are still facing many challenges. The numbers have helped the Euro monetary bloc avert falling into a recession so far. But growth is rather "anemic" and that is evidenced by the recent layoffs, as well as by the declines in orders.
The British Pound extended losses for a third consecutive day against the U.S. Dollar following announcements revealing that Retail Sales fell in September by more than economists predicted. The Office for National Statistics stated that there's been a downslide in automobile fuel sales, and this has raised concerns over the stability of the British economy.
The Yen traded lower against the U.S. Dollar even though Japan's Purchasing Manager's Index printed better than anticipated. Experts say that the rise can be attributed to the Yen's depreciation. However, the Bank of Japan failed to sell the amount of bonds it hoped to auction; they say that this is due to investors who were unhappy with the idea of more liquidity being injected into the market. In short, analysts say, the bank wants to provide the market with more liquidity than it wants, and would like to purchase more Treasury Bills than the market wishes to sell. Economists have indicated that while the Yen has dropped in value against the greenback in the last two years, and it has aided companies to obtain bigger gains, it has also hurt workers by reducing their purchasing power. This has led policy makers to engage in further discussions about raising inflation.
Both the Australian and New Zealand Dollars declined versus their U.S. peer as Wednesday's reports out of the U.S. denoting an increase in the cost of living supported demand for the greenback. The Aussie obtained support from data out of China showing that the HSBC Manufacturing Purchasing Manager's Index rose to 50.4 in October, after moving up to 50.2 in the past month. In addition, the National Bank of Australia said that Business Confidence has stayed unchanged at 6 since the second quarter. In New Zealand, however, the news was not all that positive; it revealed a slight hike in Consumer Prices, but missed economists' predictions. This added to speculation that the Reserve Bank of New Zealand may not raise the costs of borrowing money for some time to come.
EUR/USD-Spanish Unemployment Drops
The EUR/USD rallied subsequent to reports indicating that the region's business activities improved in the month of October. Production in the Manufacturing sector grew at the quickest pace in three months, although activities in the Services industries remained at the same level as in September. According to Markit Economics, the preliminary reading of the Manufacturing Purchasing Manager's Index showed a hike from 50.3 to 50.7, while experts had forecast a decline to 49.9. The Services PMI read at 52.4, just a tad above the predicted 52.0. The numbers are consistent with reports denoting that third quarter growth is going up, but unless consumer demand increases, the GDP could disappoint in the last quarter of the year. Germany also provided good news, indicating that Manufacturing PMI went from 49.9 to 51.8 denoting that it's in expansion territory once again. But the Services sector did not fare as well. The report showed that the Index slipped from 55.7 to 54.7. Meanwhile, France continues to struggle. The Manufacturing Index plunged from 48.8 to 47.3 in October, suggesting that the sector is deteriorating rapidly. Spain offered stellar announcements, indicating that its Unemployment Rate plunged to the lowest level since 2011 in the months of July through September; and the Bank of Spain expects the upcoming reports to show that the economy expanded 0.5 percent in the same period. But still, economists are worried since Spain's level of unemployment is the second highest in the E.U.
GBP/USD-Retail Sales Raise Concerns
The GBP/USD remained to the downside for a third day in a row. The pair sustained the longest streak of losses in close to one month as reports out of the U.K. issued by the Office for National Statistics confirmed that Retail Sales plummeted in the month of September. The volume of Core Retail Sales, which excludes automobiles fell 0.3 percent, while economists anticipated a mere 0.1 percent drop. And even though recent announcements have pointed to a slowdown in inflation as well as loss of momentum in manufacturing activities, the GBP/USD has not lost its appeal. The U.K. remains on the right course to become the fastest-growing economy within the G-7. But many analysts are worried that the dip in Retail Sales could be pointing to economic instability. Policy makers anticipate that the U.K.'s economy may suffer the effects of the Euro-zone's slowdown. The report also indicated that on a year-over-year basis, sales climbed at an annual pace of 2.7 percent, which is less than expected. In other news, the U.K. revealed that the average cost for homes in London has surged above 500,000 Pounds, suggesting that first-time purchasers are having to give the biggest down payments in the last ten years. Young people are having to borrow from their parents just to afford rent. Buying a home is now out of their reach. And according to the British Banker's Association, the possibility of an interest rate hike is keeping buyers away from the real estate market.
USD/JPY-PMI Posts Better Than Forecast
The USD/JPY rallied despite stellar news out of Japan indicating that the Manufacturing Purchasing Manager's Index came in at 52.8 rather than the anticipated 52.1. In the meantime, the Bank of Japan purchased $25 billion of the country's discount T-Bills from a number of companies. Sources say this is the first time since 2013 that the central bank has had to purchase less than its target amount. By missing the target, the central bank is revealing that it's in a predicament after having injected liquidity into a market where investors are afraid to borrow money. The Japanese economy continues to struggle and many economists believe that trying to reach a 2 percent inflation level by 2015 is "rather ambitious." At this time, speculators are wondering whether the policy makers will introduce more stimulus.
NZD/USD-Inflation Data Disappoints
The NZD/USD plummeted on Thursday after macroeconomic fundamentals out of the South Pacific nation revealed that Consumer Price Inflation only went up 0.3 percent in the third quarter, while economists anticipated a 0.5 percent hike. The NZD/USD shrugged off reports out of China indicating that activities in the Manufacturing sector went up slightly, posting above predictions. Meanwhile, the Reserve Bank's governor, Graeme Wheeler suggested that a rise in the international financial system is causing the Kiwi's appreciation; however, he turned down calls for intervention. Mr. Wheeler added that the overvalued NZD/USD is limiting the country's ability to control inflation levels and attain stability in the economy.
Today's Outlook
Today's economic calendar is light. It reveals that the U.K. will report on GDP. And the U.S. will issue New Home Sales.