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Daily Report: EUR/USD, GBP/USD, XAU/USD And USD/JPY : August 26, 2014

Published 08/26/2014, 05:16 AM
Updated 09/16/2019, 09:25 AM

The U.S. Dollar sustained a broad increase against a basket of major currencies after Friday's speech by Janet Yellen, the Chairwoman of the Federal Reserve pointed to the likelihood the policy makers won't raise the interest rate until the coming year. The greenback rallied dramatically, especially versus the Euro after Mrs. Yellen's comments wherein she admitted that the recent data points to the economy's recovery; but she cautioned that the employment sector, while it has improved, is not yet where it needs to be. On the data front, the U.S. Commerce Department announced that New Home Sales fell 2.4 percent, well below the expected 5.7 percent hike. And despite the disappointing news, the Dollar continued to trade strongly. Gold Prices dipped. Futures for delivery in December fell, especially as Mrs. Yellen's words benefitted the strengthening of the Dollar.

In the Euro region, Germany reported that its Business Climate has not fared well, and a survey of 7,000 entrepreneurs denoted that sentiment hit the lowest level in more than 12 months. The Euro remained to the downside after the President of the European Central Bank, Mario Draghi revealed that the monetary authorities are prepared to take the needed steps to avoid deflation, even though most economists believe that the Euro region's Inflation levels could post even lower. The British Pound showed small fluctuations, and hovered near a twenty-week low against the U.S. Dollar as statements by the Fed's Chairwoman issued at the Wyoming annual symposium increased the appeal of the greenback. Markets in the U.K. were closed on Monday due to a Summer Bank holiday. The Sterling remained weak, days after the U.K. released less than stellar economic fundamentals.

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The Yen fell versus the U.S. Dollar after Haruhiko Kuroda spoke at the Jackson Hole Symposium. In his speech, Mr. Kuroda indicated that Japan is suffering from a decline of participation in the labor market and it's considering the hiring of more foreigners. In the meantime, Shinzo Abe said that more women could be hired to fill the slack. Mr. Kuroda said that the central bank would continue with the current monetary policies for a while.

And the New Zealand Dollar declined against its U.S. counterpart following the opening speeches delivered by central bankers in Wyoming; but it was little impacted by speculation that the Reserve Bank may intervene to debase the Kiwi. Australia's Dollar also weakened versus the greenback during the Asian trading hours as market traders digested the messages in the central bankers' speeches. Risk appetite remained low as the world continues to monitor events in the Ukraine, after Kiev's government intimated that Russia is invading while pretending to bring aid into the country. NATO has reported an increase of Russian military forces within the Ukrainian borders, a factor that could escalate tensions.

EUR/USD- IFO Drives Euro Lower

The EUR/USD plummeted to the lowest rate in eleven months, and while some economists believe that the lackluster news out of Germany prompted the pair's depreciation, many analysts say it was Mr. Draghi's words what caused the EUR/USD to plunge. Yet, it's true that the German IFO Business Climate Index posted worse than expected, pushing the Euro down. The survey printed at 106.3 rather than the predicted 107, much lower than July's 108 reading. The Current Assessment also came in low at 111.1 and future expectations fell to 101.7. Economists believe that geopolitical tensions with Moscow, and the slowdown of activities in the Euro-zone are starting to impact Germany's economy. But many are in disagreement and say that Germany, the region's biggest economy is not in danger of dipping into a recession, especially since its auto industry has improved. However, speculators anticipate that the Gross Domestic Product data for the third quarter may not be positive. The EUR/USD weakened after Mario Draghi, the President of the European Central Bank said that the bank may opt for other measures to avert low inflation, and most leaders in the region predict that consumer prices will dip further. He added that the only way the economy will sustain solid progress is if the nations of the Euro monetary bloc implement fiscal reforms.

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GBP/USD- Sterling Stabilizes

The GBP/USD stabilized, but continued to trade close to the lowest rate in five months. The pair had extended losses after data issued in the past days confirmed that Inflation had not risen to the levels economists expected, causing market traders to reduce speculation over an interest rate hike. Selling pressure was high after the Bank of England published the Minutes from the recent policy meeting, which revealed that only two of the officials believe it's time to raise the rates. In the days ahead, trading is likely to remain subdued due to the banking holiday in the U.K. and the fact that most traders are enjoying the end of their summer vacation. Volatility may increase once house price metrics are released. Sources say that the U.K. may post a slower than predicted rise in prices.

XAU/USD- Gold Erases Gains

XAU/USD dipped as investors opted for high-yield assets. The pair's decline was also prompted by concerns about the brewing crisis in the Ukraine, where officials have insisted that Russia is actually invading, not bringing in aid as it says. However, traders are now focused on Iraq, where ISIS militants executed an American journalist and posted the execution for the world to witness. Futures for December delivery plummeted to a nine-month low on Monday as investors digested the message Mrs. Yellen sent to the markets regarding the timing for a rate hike. Contracts for December delivery erased 0.1 percent in gains, and reached $1,279.60 a troy ounce on the New York Mercantile Exchange, which fluctuated within a tight range, rising to $1,281.10 and dipping to $1,277.60. Prices were at $1,273.40 on Thursday, the lowest level since mid-June. In general, a strong greenback weighs on gold prices as it dampens demand for the commodity. This week, market traders will stay focused on U.S. macroeconomic fundamentals to gain further insight into the health of the U.S. economy and have a better gauge of when the Fed could raise the key cash rate. The XAU/USD resumed its drop on Monday morning.

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USD/JPY- Kuroda Speaks In Wyoming

The USD/JPY gained on Monday, even though the Federal Reserve said it's not ready to raise the interest rate until all sectors of the U.S. economy have shown solid improvement. While there were no economic news out of Japan, the USD/JPY remained strong. In a speech delivered in Wyoming, Haruhiko Kuroda, the central bank's governor suggested that policy makers may have to keep the stimulus program for longer than predicted.

Today's Outlook

Today's economic calendar shows that the U.K. will report on BBA Mortgage Approvals. The U.S. will issue metrics on Core Durable Goods Orders, Durable Goods Orders, the House Price Index, and CB Consumer Confidence. And New Zealand will publish the FPI as well as data on Construction work done.

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