The U.S. dollar traded at a four-day low versus the yen and weakened against a number of its trading counterparts as buoyant economic news out of the euro region bolstered risk appetite throughout the markets. The greenback traded mixed following the release of key fundamentals which revealed that the Richmond Fed Manufacturing Index surged to 7 this month from -7 in March, surpassing forecasts for a reading of zero. However, disappointing figures issued on Wednesday pushed the greenback to the downside. A release by the Commerce Department divulged that the Sale of New Homes in the U.S. dropped in March to the lowest level in almost eight months. Sales fell 14.5 percent to a yearly pace of 384,000, while economists thought that these would post an acceleration to 450,000. In addition, Markit Economics revealed that the Manufacturing Index dipped slightly from 55.5 to 55.4 in April. Gold prices rose from a ten-week low, though gains were limited due to the possibility that the weakening Chinese economy could signify a reduction in physical demand for the commodity. According to speculators, the decline of the yuan caused gold prices to rise. Futures for June delivery traded at $1,283.80, up 0.23 percent. The precious metal was also bolstered by continued concerns over the situation in the Ukraine, where it appears that an agreement to defuse tensions has fallen by the wayside. Officials are trying to dislodge pro-Russian militants even as Moscow insinuated that the move could bring about a civil war. The Ukraine stopped military exercises in an effort to abide by an agreement reached between world powers in Geneva. And while the markets are watching developments in the Ukraine closely, some safe haven assets like Gold are benefitting.
In the euro region, economic announcements prompted speculation that the european Central Bank may not expand monetary easing, given the stellar macroeconomic fundamentals issued on Wednesday which signaled that the economy may be in better shape than economists had thought. In addition, market traders are scooping up high yielding bonds from a number of euro-zone nations, denoting that confidence has returned to the financial markets. The British pound rallied up and down, but traded close to the highest level in 4½ year against the greenback after the Bank of England released its policy meeting minutes. Despite the fact that policy makers unanimously agreed to maintain the benchmark interest rate at a record low of 0.5 percent, investors anticipate that improvements in the employment sector could prompt the bank to boost the rates sooner than planned.
The yen continued to trade higher against the U.S. dollar despite growing criticism over Abenomics. Finance Minister Taro Aso suggested that the measures now in place have done little to bolster the economy, as Japan posted a record trade deficit for 2013. The reports showed that the ballooning deficit came about as a result of higher energy costs resulting from the suspension of operations of the nuclear plants. Many analysts believe that Japan’s Current account is deteriorating, a factor that could jeopardize the yen’s standing as a harbor currency.
Lastly, the South Pacific currencies declined against their U.S. counterpart after the HSBC Holdings Plc and Markit Economics confirmed that China’s Manufacturing rose slightly from 48 to 48.3 in April, signaling that the economy remains weak.
EUR/USD: PMI Supports Euro
The EUR/USD surged on Wednesday after the euro region issued the Purchasing Manager’s Indexes, denoting that Manufacturing climbed from 53.0 to 53.3 this month, and did not stay unchanged as many analysts were predicting. The E.U. also revealed that the Services PMI climbed to 53.1, which was more than anticipated. Furthermore, Germany, which is the region’s largest economy, posted a stellar Manufacturing PMI of 54.2 after it read at 53.7 in March; and the Services PMI went up from 53.0 to 55.0. The only lackluster metrics were published by France, where the two sectors sustained declines. Elsewhere in the E.U., Portugal reported that its government bonds climbed, while ten-year yields dropped to the lowest level in eight years. The announcements support Mr. Draghi’s opinion that the euro region is still recovering; but officials continue to worry that the crisis in the Ukraine, along with the appreciation of the euro could dampen economic growth for the region.
GBP/USD: British Government Reaches Goal
The GBP/USD traded mixed, though it advanced to the highest level in 4½ years subsequent to the release of the April policy meeting minutes, which revealed that the BOE Committee remains unsure about the level of “slack” lingering in the British economy, thereby prompting the GBP/USD to decline. Policy makers also indicated their intent to leave the key cash rate unchanged. On the data front, the U.K. reported that the Inflation level fell from 1.7 to 1.6 percent in March, still below the 2 percent target. Other news confirmed that the U.K.’s government attained its goals of bringing the deficit down in the last fiscal year. The Office for National Statistics indicated that the Public Sector Net Borrowing from 2013 to 2014 posted at 107.7 billion pounds, amounting to 6.6 percent of the nation’s gross domestic product.
EUR/JPY: Euro Rebounds
The EUR/JPY advanced as investors showed their confidence in the euro-zone’s economic improvement by buying high yielding assets from Spain, Greece, Italy and Portugal. The yen slipped as investors are growing concerned about the lack of success of Abenomics. Sources say it has not been as effective as hoped, and even though the yen has depreciated, exports have not climbed as much as expected. Meanwhile, Haruhiko Kuroda, the Bank of Japan’s governor, is still suggesting that the economy is on the right course and will attain its 2 percent inflation target. Mr. Kuroda told reporters that he does not support the idea of leaving the key cash rate low and added that financial reforms are needed to sustain the nation’s recovery.
AUD/USD: Inflation Surprises Analysts
The AUD/USD gave up prior gains following the release of the Consumer Price Inflation data which missed forecasts, while the Chinese HSBC Manufacturing PMI came in below 50 once again. Prices for consumer goods and services only inched up 0.6 percent in the months of January to March, while economists predicted these would go up by 0.8 percent. The Aussie had rallied in the past few days as the markets anticipated better news regarding inflation. Central bank board member John Edwards indicated that a hike in exports has contributed to the drop in commodity prices and helped bolster the Aussie’s value.
Daily Outlook: Today’s economic calendar shows that the euro region will report on German Business Expectations and Current Assessment. The U.S. will publish Initial and Continuing Jobless Claims, Durable Goods Orders and Core Durable Goods Orders. Japan will release National Core CPI and Tokyo Core CPI.