The U.S. Dollar dipped for a third week as optimism over data indicating that the world’s largest economy is expanding drew investors away from refuge currencies. According
The U.S. Dollar dipped for a third week as optimism over data indicating that the world’s largest economy is expanding drew investors away from refuge currencies. According to Friday’s releases, U.S. orders for durable goods rose higher than anticipated. Also, home prices declined in 20 U.S. cities, though at a slower pace than forecast. And a private survey suggested that consumer confidence may have increased this month. Furthermore, risk appetite was buoyed by indications that the job sector is recovering. The outlook was supported by the fact that Initial Jobless Claims dipped the most since April of 2008. Aside from these announcements, risk sentiment was fueled by news that the House of Representatives extended payroll tax cuts for another two months, even though they were supposed to expire on January 1st.
The Canadian Dollar traded at its highest level in three weeks after domestic data and announcement out of the U.S. showed evidence that both economies are advancing. The Loonie continued to rally as crude oil surged to its highest price in three weeks and as stocks erased losses for 2011. Canada’s currency sustained its biggest advance versus the greenback in one week.
The Euro saw little change versus the greenback after the ECB issued 3 percent loans to the region’s banks. And while investors were speculating on whether these institutions would utilize the funds to purchase peripheral debt in order to reduce borrowing costs, all signs are indicating that they would keep the capital for refinancing purposes. Other market reports revealed that a dip in the U.K.’s housing sector caused the British Pound to weaken. But the Sterling recouped as the currency benefitted from uncertainty in the E.U. and as investors sought its relative safety.
There was very little trading with the Yen due to Japan’s market holiday and the Christmas break. In the meantime, Japan’s government announced its plans to purchase Chinese Bonds in 2012; it also intends to trade its currency without the use of the U.S. Dollar and will work at encouraging the development of this type of market in order to cut company costs.
The Australian Dollar extended gains towards the end of last week on signs that the U.S. economy is expanding, thereby spurring demand for high-yield assets. However, demand for South Pacific currencies was lower than usual in anticipation of this week’s bond auction in Italy. According to analysts, investors are concerned that the debt crisis will continue to dampen global growth.
EUR/USD- Downgrade Fears Limit Momentum
Investors continue to show concern over the possible threat of credit rating downgrades for E.U. member nations, which has caused a decline in momentum. The Euro remained unchanged versus the U.S. Dollar even after the ECB confirmed that regional banks would remain liquid in the coming year. The ECB awarded 489 billion Euros to area banks; however, it is likely they won’t use the money to purchase debt but may hoard the funds for refinancing needs. On the data front, France’s GDP increased by only 0.3 percent and economists believe the economy isn’t likely to grow in the coming year.
GBP/USD- Sterling Seen As Refuge
The British Pound closed high at the end of the European session on Friday as investors continued to worry over the debt crisis and chose the relative safety of the Sterling. This of course caused the British Pound to gain versus the Euro. On the data front, GDP printed at 0.1 percent higher than expected with a stellar consumer confidence report. The currency benefitted against the greenback as risk appetite returned to the markets on better than anticipated news out of the U.S.
USD/CAD- North American Recovery Benefits Loonie
The Canadian Dollar rose the most in three weeks subsequent to the release of positive economic data in the country and out of the U.S., providing evidence the economies of both countries are expanding. The Loonie strengthened against the majority of its peers despite the increasing borrowing costs in the Euro region. The currency rallied further as crude oil climbed the most in three weeks and as optimism caused stocks to erase losses for 2011. On the data front, Canada’s wholesale sales went up by 0.9 percent. Canada’s currency sustained the biggest intraday hike of the month as crude oil, its biggest export rose 3.2 percent, and as metrics revealed the consumer price index advanced 2.9 percent in November.
USD/JPY- Yen To Trade Without U.S. Dollar
There’s been little trading volume with the USD/JPY as the country celebrated the Emperor’s birthday and as markets closed for the Christmas holiday. Other than that, events out of North Korea have influenced price action. Meanwhile, the markets learned that the Bank of Japan lowered the economic growth outlook for the country. In other news, the Japanese and Chinese governments announced their intentions to trade their respective currencies in a market they plan to develop. Economic metrics indicated that Japan’s GDP grew an annualized 5.6 percent; however, analysts expect this pace to slow down.
Today’s Outlook
Today’s economic calendar shows that all markets are closed in observance of the Christmas holiday. However, Japan will publish the Minutes from its last Policy Meeting.