The U.S. dollar slumped to a six-month low versus several Forex majors on concerns over the situation in the Ukraine, and as traders exerted caution before Fed chairwoman Janet Yellen testified on the U.S. economy’s outlook before Congress. Worries that the crisis in the eastern region of the Ukraine could worsen impacted demand for risk assets, especially as the violence between government and pro-Russian forces escalated, suggesting that a civil war could become a reality. Gold Prices rallied to the highest price in close to three weeks as the markets were affected by geopolitical tensions in europe. Russia has called for the Ukraine to hold off from holding general elections on May 25th, but the U.S. has suggested that the country ignore Mr. Putin’s request. June delivery Futures traded at 0.1 percent higher and reached $1,310.50 a troy ounce on the Comex Division of the New York Mercantile Exchange.
In the euro region, all eyes were on the european Central Bank, which is set to hold its policy meeting today. Investors expect the bank to leave the interest rate unchanged, but predict that policy makers could implement some type of measure given the recent appreciation of the euro. Exporters have expressed concern and are beginning to feel the effects of the overvalued currency. ECB President Mario Draghi stepped up his campaign to debase the currency by discussing the possibility of boosting the asset-purchasing program should the euro weigh on inflation. Nevertheless, the euro came very close to the psychological $1.4000. The euro reached $1.3951 on Tuesday and traded at $1.3925 during morning hours in London. Reports showed that the euro increased 8 percent versus nine majors from developed markets since March of 2013. The British Pound surged to a nine-week high versus the euro and extended its advance against the U.S. dollar on speculation that the Bank of England could boost the benchmark interest rate when it meets today. The Sterling remained strong and analysts anticipate it could continue to strengthen if the greenback weakens.
The yen was bolstered by a decline in Asian equities after China reported that the Services sector did not expand much, while the real estate market cooled off. The Chinese government is worried about finding other sources of revenue in light of the decline in property sales, and has admitted that the economy could face more challenges.
Lastly, New Zealand’s currency fell against all of its Forex counterparts following comments by the Reserve Bank’s governor, Graeme Wheeler, who suggested that the bank could intervene should the currency fail to decline upon the release of lackluster macroeconomic releases. The Kiwi depreciated against the U.S. dollar on data indicating that prices of whole-milk powder fell for the sixth consecutive month. Australia’s dollar steadied versus the greenback even as the South Pacific nation reported that Retail Sales only climbed 0.1 percent in March, missing forecasts for a 0.4 percent increase.
EUR/USD: Draghi Worried About Euro Rate
The EUR/USD rallied close to a two-month high following stellar economic reports out of Spain and Italy, signaling that the E.U. has emerged from the debt crisis. The pair shrugged off news indicating that German Factory Output fell 2.8 percent from the previous year, while economists anticipated that Orders would climb 0.3 percent. Market traders were await the ECB’s monetary policy decision while some analysts believe that the bank could leave the key cash rate at the current 0.25 percent low, but may take steps to bolster the economy as the euro’s appreciation could dampen growth. ECB President Mario Draghi has said that should the euro reach $1.4000, the bank may have to step in to ensure the appreciation doesn’t negatively impact inflation any further.
GBP/USD: BOE To Issue Rate Statement
The GBP/USD advanced to the highest price in almost five years on speculation that the Bank of England could raise the interest rate soon, or possibly by the start of 2015. The Sterling rallied on Tuesday after data showed a major expansion in the services sector, improving the outlook for the U.K.’s economy. This will be the first decision the bank issues after the economy posted a decline in the rate of unemployment. But despite the drop in the jobless rate governor of the central bank, Mark Carney, stated that the employment sector still needs to improve.
EUR/JPY: Tensions Affect Appetite
The EUR/JPY declined as tensions between Moscow and Kiev intensified after violence erupted in the Eastern and Southern parts of the country. On the data front, Markit Economics stated that Japan’s Services sector sustained a decline due to a fall in business activity as well as the sales tax increase. The seasonally adjusted Business Activity Index plummeted from 52.2 to 46.4, denoting that it is now in contraction territory, a factor that also impacted foreign investment. And even though policy makers don’t want to expand the monetary easing program, they still want to ensure that the yen remains weak in order to bolster exports. Economists anticipate that if the nation fails to show “artificial profits” in its projections, companies won’t boost salaries and consumers will spend less while confidence declines.
NZD/USD: Employers Create Payrolls
The NZD/USD tumbled on comments by Graeme Wheeler, the Reserve Bank of New Zealand’s Governor, in which he warned of a possible intervention as the Kiwi inched higher, dampening exports and hurting the domestic economy. The pair was also weighed on by data out of China showing that the Services sector is still resilient but has slowed down. The OECD suggested that New Zealand’s current account deficit will probably contract. On the data front, the number of jobs increased by 0.9 percent in the initial quarter of this year, surpassing forecasts for a 0.6 percent surge. The report also revealed that the level of unemployment stayed at 6.0 percent in the last quarter, even as economists predicted it would drop to 5.9 percent. The pair slumped after hovering near the highest in close to three years after news that whole milk powder prices fell again.
Daily Outlook: Today’s economic calendar shows that the E.U. will release the Interest Rate Decision. The U.K. will publish the BOE’s Rate Decision and QE Total. The U.S. will report Initial and Continuing Jobless Claims, as well as speeches by several FOMC members. Australia will announce the RBA Monetary Policy Statement. And China will reveal CPI and PPI.