The U.S. Dollar weakened against the majority of its foreign exchange counterparts following less than stellar economic releases which showed that the world’s largest economy only expanded at a yearly rate of 0.1 percent during the initial quarter of the year, missing forecasts for 1.2 percent growth. But despite the soft metrics, Federal Reserve chairwoman, Janet Yellen, indicated that the economy has shown signs of improvement after a long, harsh winter weighed on growth. The Fed also announced that it would leave the interest rate at the current low for some time, even after wrapping up the stimulus program some time this year. Mrs. Yellen added that the central bank will cut stimulus to $45 billion in monthly bond purchases. On the data front, in addition to Gross Domestic Product, the U.S. also published the Chicago Purchasing Managers Index which denoted a hike from 55.9 to 63.0 for April. And on Thursday, the U.S. Department of Labor stated that the number of individuals who filed for Unemployment Benefits surged by 14,000 to 344,000, which was the most in two months. Furthermore, the Commerce Department revealed that Personal Consumption went up 0.9 percent in March, beating forecasts for a 0.6 percent hike. Lastly, Personal Income rose 0.5 percent, more than the anticipated 0.4 percent. The greenback remained weak following the releases. Currently, speculators are looking forward to the much-anticipated Non-Farm Payroll reports due out today. On the commodities front, Gold extended its decline subsequent to the publication of the FOMC statement, which confirmed that policy makers plan to lower the volume of monthly asset purchases to $45 billion. Futures for June delivery dropped to $1,281.90 a troy ounce on the Comex Division of the New York Mercantile Exchange.
The Euro rallied to the highest rate in three weeks against its U.S. counterpart on speculation that the European Central Bank won’t introduce a plan to increase monetary easing for some time to come. Investors were speculating that this could be the case, despite data published on Wednesday denoting that the region’s Inflation rate came in at 0.7 percent, up from the previously posted 0.5 percent in March, but still dangerously low. On the positive side, Portugal announced that it will exit the bailout program in the coming days. The British Pound rose the most in four years as the index which measures activities in the Manufacturing sector showed an increase by more than economists forecast for April. And it remained supported versus the greenback as separate announcements revealed that yearly House Prices accelerated to the most since the days before the economic crisis hit the region. However, many government officials worry that the real estate market could be overheating, thereby posing a possible problem for the British economy.
The Yen traded steady against the U.S. Dollar but remained close to its previous high as the U.S. announced that its economy grew at a very slow pace during the first quarter of 2014. The USD/JPY failed to react to fundamentals out of China indicating that the Manufacturing Purchasing Managers Index rose to 50.4 last month, after coming in at 50.3 in March. The reports denoted a decline in exports adding to signs that the world’s second biggest economy has cooled off. In Japan, central bank officials stated that they were confident the economy will reach the 2 percent inflation target without having to expand stimulus. Monetary Authorities predicted that consumer prices could go up 1.9 percent in the fiscal year of 2015, and 2.1 percent the following year.
Lastly, in the South Pacific, the Australian Dollar rose versus the greenback following soft macroeconomics out of the U.S. and as speculators look ahead to the Non-Farm Payroll reports. The Aussie remained to the upside despite news that the Manufacturing Index posted the biggest decline since summer of 2013. New Zealand’s Dollar surged to a one-week high versus its U.S. peer even as China posted a slight hike in manufacturing activities.
EUR/USD - Euro Rallies Dramatically
The EUR/USD surged to a three-week high on speculation that the European Central Bank won’t implement new measures to boost growth at this time. It retreated from the high even as the USD remained under pressure following what many called lackluster reports indicating that the U.S. economy only grew an annual 0.1 percent in the first three months of the year. But despite the metrics, the Federal Reserve proceeded to announce another reduction in stimulus, citing economic recovery as the reason. Worries over the Euro region’s rate of inflation continued even though the percentage only ticked up from 0.5 to 0.7 percent.
GBP/USD -Manufacturing Boosts Sterling
The GBP/USD surged to the highest price in four years as the index which measures Manufacturing Production jumped in April. The index which posts data based on a survey of purchasing managers showed a hike from 55.8 to 57.3 in April, which was the highest in five months. Other releases indicated that House Prices in the U.K. surged 1.2 percent since March. The Nationwide Building Society indicated that home prices have gone up 10.9 percent from the previous year, marking the biggest climb since 2007. Other metrics confirmed that approvals for Mortgage Loans dipped in March. Banks only provided 67,135 loans for purchases of properties, while in February they granted 69,592 loans.
AUD/USD - Manufacturing Dips
The AUD/USD rose more than anticipated despite economic fundamentals which showed that the Manufacturing Index sustained a three point drop to 44.8, suggesting that the sector remains fragile. The AUD/USD soared close to a new high for the year on speculation that the Reserve Bank may not boost the benchmark interest rate, and despite the fact that China only posted a minute increase in Manufacturing activities. In the South Pacific nation, other reports revealed that imports climbed 3.2 percent in the first quarter of 2014, beating forecasts for a 1.8 percent hike; and exports surged 3.6 percent, rather than the predicted 1.5 percent.
USD/JPY - BOJ Issues Forecasts
The USD/JPY dropped subsequent to soft Gross Domestic Product reports out of the U.S., and it remained to the downside even after the Bank of Japan provided its forecast for the Japanese economy. While wage increases and industrial production missed expectations, the Bank of Japan suggested that it may not expand monetary easing at this time. Industrial Output climbed 0.3 percent in March, after posting a decline of 2.3 percent in February. Officials believe that Inflation will climb 1.9 percent in the 2015 fiscal year, and 2.1 percent the year after. Mr. Haruhiko Kuroda, the central bank’s Governor, stated that the timing for reaching the 2 percent inflation target had not been pushed back.
Today’s Outlook
Today’s economic calendar shows that the Euro region will report on Manufacturing PMI, the Unemployment Rate and German Manufacturing PMI. The U.S. will publish Non-Farm Payrolls, Private Non-Farm Payrolls, the Unemployment Rate, and Factory Orders. China will announce Non-Manufacturing PMI. And the U.K. will release Construction PMI.