The U.S. Dollar depreciated against the majority of the majors as 10-year Treasury yields plunged to the lowest level in nine months in relation to their Japanese counterparts. Analysts believe this happened because Federal Reserve Chairwoman, Janet Yellen, indicated that the economy is still in need of help, thereby reducing the possibility of an interest rate hike. The greenback was also weighed down by forecasts, which called for the Gross Domestic Product to shrink. It remained to the downside after official announcements confirmed that the U.S. economy contracted for the first time since 2011, supporting the case for the Federal Reserve to adhere to the stimulus program. The government revealed that Gross Domestic Product shrank 1 percent in the first quarter of 2014. The U.S. Dollar retreated from a session low after other news showed that U.S. Consumer Spending, which accounts for over two thirds of the economy, rose 3.1 percent rather than the predicted 3 percent. Furthermore, the Labor Department revealed that the number of individuals who filed for Jobless Claims in the past week dropped by 27,000 to 300,000, instead of the expected 9,000. Meanwhile, Gold Prices touched the lowest level in four months on signs the U.S. economy is improving. The shiny metal slipped despite optimism in the markets which arose after leaders of the European Union met in Brussels, during which time they decided to hold off from implementing stricter sanctions against Russia for the moment. Sources reported that Russia President Vladimir Putin is willing to talk to the Ukraine’s newly elected President in an effort to ease tensions between the two nations. Bullion for immediate delivery dipped 0.4 percent to $1,252.76 a troy ounce in London, and Futures for August delivery went down 0.5 percent, trading at $1,253.00 on the Comex Division of the New York Mercantile Exchange.
The Euro recouped its footing against the greenback on speculation that the European Central Bank may increase monetary easing when it next meets in June; and it remained to the upside on forecasts that Germany could post a hike in Retail Sales for April. Market traders awaited comments from Carlos Costa, a member of the ECB’s Governing Council. On Wednesday, Yves Mersch stated that the monetary authorities feel comfortable with the idea of using unconventional as well as conventional measures to shore up growth in the Euro region. The British Pound continued to trade near a six-week low against the U.S. Dollar only a day after sustaining a major drop on worries that the U.K. real estate sector could be slowing down.
The Yen rose versus the U.S. Dollar despite reports showing a drop in Retail Sales. The release indicated that Japanese Retail Sales for April fell at the quickest pace in more than fourteen years due to a recent hike in sales tax. The plunge came after consumers engaged in a major splurge, buying big ticket items while the sales tax was at 5 percent. The Cabinet Office revealed that the gauge which measures sentiment among restaurant workers and taxi drivers climbed to a record high last month.
Lastly, in the South Pacific, New Zealand’s Dollar fell against its U.S. peer as Wednesday’s lackluster economic announcements weighed on the monetary unit. ANZ confirmed that the Business Confidence Index ticked down to 53.5 from 64.8. And in Australia, reports revealed that New Home Sales climbed last month, while Capital Expenditures dropped in the initial quarter of 2014. The Australian Dollar traded higher versus the greenback.
EUR/USD - Retail Sales Could Be Higher
The EUR/USD rallied after trading close to a four month low on signs that the European Central Bank is getting ready to unveil new easing measures in June, and as economists predict that Retail Sales could come in higher when Germany issues the report. Speculation that policy makers will take action increased, and most investors anticipate that the ECB could reduce the deposit rate. The Euro came close to touching a four-month low after ECB President Mario Draghi suggested that the central bank is aware of the risks that persist, and of the fact that low levels of inflation could endanger the region’s economic recovery.
GBP/USD - Real Estate Could Slow Down
The GBP/USD plunged near to a six-week low after the U.K. reported a major decline in Mortgage Loan Approvals, suggesting that the U.K. housing market could be slowing down. The news dampened speculation that the Bank of England would raise the interest rate this year. The GBP/USD continued to trade to the downside after Martin Weale, a member of the Monetary Policy committee said that the central bank ought to consider a hike in the key cash rate “sooner than later.” He added that waiting could be a mistake as it could prompt policy makers to have to tighten policy.
USD/JPY - Sales Slow Down Dramatically
The USD/JPY weakened despite disappointing economic fundamentals out of Japan revealing that Retail Sales fell 4.4 percent in April, when the government increased the sales tax rate from 5 to 8 percent. The decline happened at the quickest pace in over 14 years. Shinzo Abe’s government is now wondering whether the economy will recover enough so that it can raise the tax rates further as planned. The report also showed that Sales for big retailers posted a decline of 6.8 percent. The Cabinet Office believes that consumption will go up again, although the pace could be slower than expected. Sources say that the central bank may increase stimulus to cushion the effects of the sales tax hike.
AUD/USD - Aussie Gains On Data
The AUD/USD advanced despite mixed data out of the South Pacific nation. Reports indicated that New Home Sales climbed 2.9 percent in April following March’s 2 percent increase. Other news revealed that Private Capital expenditures fell 4.2 percent in the initial three months of the year, surpassing forecasts for a 1.4 percent decline. Expenditures for the final quarter of 2013 were modified to show a 4.5 percent fall instead of the previously announced 5.2 percent. According to economists, the Aussie has remained strong on speculation that the European Central Bank and the Bank of Japan could implement further stimulus, and on the fact that iron ore prices rebounded. Government sources have revealed that Aussie firms plan to spend AUD$137.1 billion in the coming fiscal year, and mining investments are expected to reach AUD$80 billion.
Today’s Outlook
Today’s economic calendar shows that Japan will post data on Construction Orders and housing Starts. The U.S. will report on Personal Income, Personal Spending, Chicago PMI, Michigan Consumer Sentiment and Core PCE Price Index.