The U.S. dollar weakened and headed for the biggest monthly slump in almost five months against the majority of its counterparts as money market investors are uncertain about the future of the U.S. economy and wonder what the Federal Reserve will do next regarding stimulus. Cautious trading brought volatility in the Forex exchange down, while the head of the Federal Reserve, Janet Yellen, is scheduled to speak today about the economy and the effects that winter has had on growth. Market traders are hopeful that her statements will provide clues on the future of monetary easing. Meanwhile, data issued on Wednesday confirmed that the U.S. Consumer Confidence Index fell to 78.1 in the month of February after a revised posting of 79.4 at the start of the year. The greenback rebounded versus most of the majors during the American trading session as the U.S. Department of Commerce announced that New Home Sales surged 9.6 percent and were up 468,000 units in the first month of this year. According to the news, this was the biggest rise in more than five years. The metrics surpassed expectations as economists forecast that sales would post a 1 percent fall. Gold prices rose to a seventeen-week high but settled lower on Wednesday as investors await Mrs. Yellen’s comments. Futures for April delivery traded between $1,337.90 and $1,345.50 a troy ounce on the New York Mercantile Exchange. The shiny metal rose to $1,341.70 an ounce during the european market hours. Analysts say it may remain supported on speculation that monetary policy will continue to be accommodative.
The euro slumped against the greenback as several factors impacted risk appetite. For starters, investors worry that the Chinese economy could slow down further, especially as the Yuan sustained a major drop on Tuesday. They worry that the Ukraine may not be prepared to repay any financial aid it receives. And they have doubts about sustained growth in the U.S. economy. Meanwhile, German Chancellor Angela Merkel is slated to deliver a speech in which she may call for the strengthening of the euro-zone. Sources say that Mrs. Merkel will reiterate comments by British Prime Minister David Cameron by calling for regional reforms while emphasizing the fact that any changes must lead to the strength of the E.U. so as to remain competitive among the global economies. The British pound advanced for a second day against the U.S. dollar subsequent to the announcement of official metrics denoting that the U.K.’s economy expanded. The Sterling dipped upon the release of solid macroeconomic fundamentals out of the U.S confirming a hike in New Home Sales.
The yen traded mixed against the greenback as Chinese data continued to impact market sentiment, but the Japanese currency declined despite comments from central bank governor Haruhiko Kuroda who suggested that the economy is on the right course to achieving the 2 percent inflation target as prices are increasing on the back of a contracting production gap. In his speech to Parliament, Mr. Kuroda added that the economy is advancing at a moderate pace. On the data front, metrics on tourism disappointed, especially since tourist activity accounts for a major segment of the Japanese economy.
Lastly, in the South Pacific, the Australian dollar remained steady against the U.S. monetary unit despite less than stellar news on Construction activity which took the Reserve Bank and investors by surprise. New Zealand’s dollar traded more or less unchanged versus the greenback as reports issued on U.S. Consumer Confidence still weighed on the U.S. currency and investors traded with caution ahead of the Fed Chairperson’s speech.
EUR/USD Low Volatility Ahead Of Speech
The EUR/USD sustained few fluctuations as the markets await Janet Yellen’s speech on the state of the economy and the negative impact that the winter season has had on its recovery. Meanwhile, in the euro region, investors look ahead to a speech to be delivered by the German Chancellor Angela Merkel, who will call for the euro region to strengthen and remain competitive in the world’s markets. The EUR/USD slumped as uncertainty over the future of China’s economy impacted sentiment, and filed to rally as Germany announced that its Forward Looking Gfk Consumer Confidence Index rose to 8.5, the highest in seven years. The pair dipped to a 2-week low as the U.S. Commerce Department said that sales of New Houses went up 9.6 percent, which was the most in five and a half years.
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GBP/USD: U.K. Posts Another Quarter Of Growth
The GBP/USD advanced as official news confirmed that the British economy sustained yet another quarter of growth, although the yearly growth rate was slightly modified. According to the Office for National statistics, the U.K.’s Gross Domestic Product jumped by 0.7 percent in the last quarter of 2013, coming in as predicted. But on a year-over-year basis, the data showed that the British economy expanded 2.7 percent, rather than the previously reported 2.8 percent. With higher spending among consumers and a bigger number of business investors, the economy of the U.K. grew. The report indicated that investments in the business sector rose 8.5 percent from the prior year. But still, several of the Bank of England’ policy makers say that the central bank is not considering a hike in the benchmark interest rate yet. The GBP/USD dipped as the U.S. reported a jump in New Home Sales for the month of January.
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USD/JPY: Data On Tourism Comes In Low
The USD/JPY traded mixed on Wednesday but steadied in the early part of the day even as lackluster U.S. Consumer Confidence metrics continued to weigh on risk appetite. The pair was affected by news indicating that the Yuan dropped dramatically on Tuesday on speculation that the People’s Bank of China intervened in order to increase the level of volatility in light of reforms the government plans to institute. Meanwhile, in Japan, domestic reports showed that the country may not reach its target for foreign visitors by 2020. The government anticipated that tourism would increase, and by 2020, the number of visitors would be 20 million, but at this time predictions were revised to 17 to 18 million. Tourism is an important segment of the economy and another reason for concern.
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AUD/USD: Construction Dips
The AUD/USD traded steadily following downbeat economic reports which took the Reserve Bank by surprise. According to the official release, activities in the Construction sector went down 1 percent in the last quarter of 2013, even though economists predicted they would sustain a 0.7 percent increase. The metrics came as a surprise since central bank officials had predicted that the hike in real estate investments would help bolster all areas including construction. However, it seems that the housing market is rebounding at a very slow pace. The Bureau of Statistics revealed that overall construction including building of shops, offices and homes slipped 1.6 percent since the third quarter.
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Daily Outlook: Today’s economic calendar shows that Switzerland will issue GDP. The euro region will report on Money Supply and Private Loans as well as on Consumer Confidence, Business Climate and Industrial Sentiment. The U.S. will issue data on Durable Goods Orders, Core Durable Goods Orders and Initial and Continuing Jobless Claims. New Zealand will post metrics on Building Consents and ANZ Business Confidence. Japan will publish Manufacturing PMI, Household Spending, National CPI, Tokyo CPI, the Unemployment Rate, Industrial Production and Retail Sales. Janet Yellen, the head of the Federal Reserve is scheduled to speak before the Joint Economic Committee. And Australia will release Private Sector Credit.