The US Dollar remained strong against the euro and the yen subsequent to the announcement of positive U.S. Non-Farm Payroll metrics issued on Friday, despite the fact that economists were predicting that the would come in higher. Risk sentiment improved across the markets just days after the european Central Bank announced new measures needed to bolster the region’s economic expansion and avert the possibility of entering into a period of deflation. On the commodities front, Gold prices ticked to the upside although its gains were limited due to a rally in the equities market which reduced the appeal of safe havens. Futures for delivery in August traded at $1,254.80 on the Comex, staying above a four-month low reached over the past week.
In the euro region, new measures announced by the european Central Bank continued to dominate the headlines. The euro slumped to a session low against the greenback as investors assessed the differential in policy stance between the Federal Reserve and the european Central Bank. Spain announced that 10-year bonds declined 2.6 percent, lower than the U.S. equivalent which offered yields of 2.61 percent. Ireland’s yields also came in lower, and Germany said that its 10-year bonds slipped to the lowest in nine years versus those of its U.S. peer. The British pound remained lower against the U.S. currency but managed to rise a few pips on speculation that this week’s Labor data could point to the possibility of a rate hike by the Bank of England. Economists worry about the fact that salaries have not kept up with the rise in employment, a factor that could determine how soon the central bank would consider a change in monetary policy.
The yen depreciated against its high-yield counterparts and against the dollar after domestic news pointed to a contraction in the Current Account surplus. However, the country posted a better than predicted growth report for the initial quarter of the year.
And in the South Pacific, the New Zealand and Australian currencies were bolstered by important macroeconomic fundamentals out of China which suggested that the world’s second largest economy is improving. In New Zealand, investors await the Reserve Bank’s policy decision due this Thursday. Speculators believe the central bank could raise the interest rate.
EUR/USD: ECB And Fed Diverge
The EUR/USD slumped as the corresponding central banks diverged in their policy outlook. While the european Central Bank revealed new stimulus, the Federal Reserve is expected to wind down the monthly asset purchases. The european Central Bank lowered the costs of borrowing money and became the first of the central banks to impose deposit fees. The monetary authorities reduced the deposit rate to -0.1 percent and cut the refinancing percentage to a low of 0.15 percent. The bank also indicated it will implement other measures including targeted longer term loans. On the data front, the Sentix Investor Confidence Index posted a decline to 8.5 for June after coming in at 12.8 in May. The numbers took economists by surprise as they expected these to inch towards 13.2 given last week’s announcements by the ECB. Trading in the Forex was somewhat light as several regions of the euro-zone celebrated a holiday.
GBP/USD: Labor Data In Focus
The GBP/USD was down and analysts believe that disappointing Labor metrics could push the GBP/USD further to the downside. This week’s reports could be the catalyst for the Bank of England to raise the key cash rate. But some economists believe that the news may not post as positive as expected since salaries have remained low, even though the level of unemployment has declined. Wage inflation posted at 1.5 percent on a year over year basis. If salaries still post low, chances are the central bank could adhere to the status quo and say they can afford to delay a borrowing cost hike.
USD/JPY: GDP Posts Higher
The USD/JPY advanced even as Japanese reports showed that the economy expanded for a sixth time in the first quarter. Stronger business investments and consumption, which rose even more than previously reported contributed to the level of growth. The initial quarter’s Gross Domestic Product came in at the highest since the third quarter of 2011 when demand for the reconstruction of the earthquake affected northeastern region of the country was high. Official releases indicated that investment into new business equipment climbed 7.6 percent in May. And overall Gross Domestic Product surged 1.6 percent rather than the anticipated 1.4 percent. The bad news related to the Current account. The USD/JPY fell further after the country stated that the surplus printed at 187.4 billion Yen, reflecting a contraction for April. Economists say that the country’s trade position has deteriorated in the last few years and this will continue to impact the Yen. Other announcements confirmed that Bank Loans increased 2.4 percent in May and Capital Spending jumped 7.6 percent in the year’s first quarter.
AUD/USD: Aussie At Highest Rate In 3 Weeks
The AUD/USD rose to the highest rate in three weeks as risk aversion declined in the markets. In the south Pacific nation, official news issued in the past few days denoted that the economy expanded at 1.1 percent in the months of January through March, more than the expected 0.9 percent. The commodity related currency was also bolstered by the european Central Bank’s decision to boost stimulus. And while the Aussie markets closed on Monday due to the Queen’s Birthday, investors awaited a speech by Glenn Stevens, the Reserve Bank’s Governor, on financial regulations. This week, all eyes will be on important fundamentals such as consumer confidence and home loans, among others. The AUD/USD benefitted from stellar news out of China indicating that exports surged while imports dropped.
Daily Outlook: Today’s economic calendar shows that Switzerland will report on the Unemployment Rate. Japan will issue Machine Tool Orders, BSI Large Manufacturing Conditions and CGPI. The U.K. will publish Industrial and Manufacturing Production as well as the NIESR GDP Estimates. The U.S. will release JOLTs Job Openings. Lastly, Australia will announce Westpac Consumer Confidence.