Daily Report: Volatility In Forex Market Continues On Fed Meeting

The U.S. Dollar traded mixed as volatility in the Forex market continued in anticipation of the Federal Reserve’s two-day meeting which starts today. It appears that risk appetite increased over the weekend but investors are still cautious as they await reports on Manufacturing out of China, the Euro region’s ZEW release, and the Fed’s decision on the future of the current monetary policy. Risk appetite increased throughout the day, causing global stocks to rally, suggesting that demand for refuge was down.

Data out of the U.S. revealed that Manufacturing activity in the New York region improved. The figures showed a hike from -1.43 in May to 7.8 this month, marking a three-month high. The U.S. will issue metrics on Building Permits, Housing Starts and Consumer Price Inflation later today. Investors will also continue to eye the G-8 summit taking place in Ireland. In the meantime, Gold Prices slipped at the start of the week as investors held on to their Dollar positions ahead of the Federal Reserve’s Monetary policy meeting. Uncertainty over whether the central bank will put an early end to stimulus weighed on the precious metal and prompted Gold Futures for August delivery to slip 0.32 percent; these settled at $1,383.15 a troy ounce on the Comex Division of the New York Mercantile Exchange.

The Euro was up and down against the U.S. Dollar throughout the day but managed to rally versus the Yen after economic releases indicated that the region’s Trade Surplus narrowed yet still came close to a record high in April. Today, the ZEW will announce the much anticipated news on German Economic Sentiment. The British Pound remained level as market investors continued to wonder what the Federal Reserve will do now that the U.S. has issued mixed economic data over the past few weeks. The Sterling was supported by the Institute of Chartered Accountants reports out of England and Wales, which predicted that the economy of the U.K. may grow at the quickest pace since 2010. The institute upgraded its growth predictions from 1 to 1.2 percent.

In Japan, the Nikkei settled overnight as equities markets around the world rallied in response to a higher demand for risk appetite. The Yen declined against most of its peers as optimism improved.

Lastly, in the South Pacific, the New Zealand Dollar declined after having traded at the highest level in four weeks versus Australia’s Dollar. This took place as the Reserve Bank’s Governor, Graeme Wheeler, indicated that he was willing to intervene in an effort to debase the overvalued currency. The Kiwi managed to recoup its footing versus the greenback subsequent to the announcement of positive domestic data, despite the fact that market investors traded cautiously ahead of the upcoming Federal Reserve’s two-day meeting. Australia’s Dollar also traded higher against the U.S. currency although its gains were limited due to concerns over the future of U.S. monetary policy.

EUR/USD- Trade Surplus Narrows
The Euro traded steadily for most of the day but dipped versus the U.S. Dollar as investors remained on the sidelines ahead of the Federal Reserve’s monetary policy meeting. On the data front, the Euro region posted a smaller than expected Trade Surplus. Economists explained that Exports dipped 0.8 percent while Imports gained 0.5 percent. According to the European Union’s Statistics office located in Luxembourg, the area’s Trade Surplus contracted from a revised 18.1 billion Euros to 16.1 billion Euros in March. Meanwhile, the E.U.’s leaders are contemplating a trade agreement with the U.S. in an effort to bolster growth and curb their debt.
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GBP/USD- Economy May Grow Faster
The British Pound continued to trade at four-month highs against the greenback as speculators anticipate the Federal Reserve may cut back its monthly asset purchases. In the U.K., the NFIB indicated that business confidence has increased to the highest level in three years, suggesting the economy may grow faster as predicted by the Institute of Chartered Accountants.
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AUD/USD- RBA May Cut Rates
Australia’s Dollar advanced and extended its weekly gains versus the U.S. currency amid speculation its big drop may have occurred too fast. The Aussie recouped its footing in anticipation of today during which the Reserve Bank is expected to issue the policy meeting Minutes. Investors predict these may offer clues on whether the central bank will lower the benchmark interest rate. The Aussie advanced further as investors look forward to the Federal Reserves’ decision regarding stimulus; and it remained strong despite lackluster data which revealed that New Auto Sales were flat last month.
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NZD/USD- Consumer Confidence Rises
New Zealand’s Dollar rose versus its U.S. peer following upbeat metrics out of the South Pacific’s nation. According to Westpac Banking Corporation, Consumer Confidence climbed from 110.8 to 116.6 in the second quarter of 2013. The Kiwi’s gains were capped as investors traded cautiously on worries over the future of U.S. monetary policy.
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Today’s Outlook
Today’s economic calendar shows that Japan will report on the Adjusted Trade Balance and Industrial Production. The U.K. will release data on CPI and PPI. The Euro region will issue the ZEW Economic Sentiment. The U.S. will publish Building Permits, CPI, Core CPI, and Housing Starts. New Zealand will provide figures on the Current Account.