Daily Report: EUR/USD, GBP/USD, USD/JPY And NZD/USD : August 19, 2013

The U.S. Dollar gained against the majority of its forex counterparts after better than anticipated economic reports fueled speculation that the Federal Reserve may take the data into account and decide to slow down stimulus by as soon as September. The Dollar Index also rebounded as the Labor Department indicated that Jobless Claims fell to the lowest level in 6 years. But not all releases were positive; The University of Michigan said that the Consumer Sentiment Index dipped to 80.0 in August after posting a six-year high of 85.1 in July. This raised doubts among investors and fueled concerns over just what key policy makers will decide when they meet next month. In the meantime, mounting concern over the future of monetary policy contributed to a major jump in Gold Futures. This, together with news that physical demand for the precious metal went up in Asia, prompted Gold prices to touch an eight-week high. Futures for delivery in December settled at $1,374.64 on the Comex Division of the New York Mercantile Exchange.

In the Euro region, market investors felt optimistic subsequent to a week of solid data confirming that the recession has ended. However, investors remained cautious before the publication of metrics relating to manufacturing, scheduled to be released during the days ahead. The buoyancy in optimism came about as Eurostat announced that the E.U.’s economy widened by 0.3 percent in the second quarter, which was driven by the powerhouse economies of Germany and France. Officials also explained that the rise in exports helped Spain and Italy sustain smaller contractions than anticipated. The Euro rallied versus the Yen, despite news confirming that the Japanese economy also expanded, although at a slower pace than forecast. The British Pound traded close to two-month highs against the greenback after official metrics out of the U.K. on Retail Sales and Employment bolstered appeal for the Sterling and improved the outlook for its recovery. The Swiss Franc dipped versus the U.S. Dollar and the Euro as positive news out of the Euro-zone increased risk appetite and ebbed demand for refuge.

The Yen erased prior gains against the greenback on uncertainty over the Fed decision on monetary easing, which is expected in September. Fed Chairman Ben Bernanke made it clear that the central bank would not begin reducing stimulus until the economy shows true signs of improvement. In the meantime, official releases out of Japan confirmed that the economy grew, though at a slower rate than expected. Investors will now keep an eye on what Prime Minister Shinzo Abe will decide on sales taxes, as many economists believe that an increase would be bad for the recovery of the nation’s economy. The Yen slipped versus the Euro at the end of last week.

Lastly, the Australian Dollar rose versus the U.S. currency amid concerns over U.S. monetary policy; and the New Zealand Dollar reached a nine-week high versus its U.S. counterpart after days of positive reports denoting an increase in Retail Sales and Core Retail Sales. In the days to come, speculators will shift their attention to China’s economic reports which are expected to reveal the manufacturing output, a factor that usually affects the two South Pacific monetary units.

EUR/USD-The Longest Recession
The Euro rallied against the U.S. Dollar after economic data provided evidence that the Euro region has finally pulled away from “the longest recession in history.” The data, which denoted an expansion of GDP of 0.3 percent in the second quarter, followed releases revealing a jump in Chinese imports and exports, thereby fueling speculation that world economies are stabilizing. In the week ahead, Germany will report on Producer Price Inflation, a leading economic indicator; and the Euro-zone will issue metrics on the services and manufacturing sectors. While the Euro gained, it did not surpass the level at which it started early in the week. Aside from the slowdown in volatility which occurs every summer, uncertainty over the future of the U.S. and European economies prompted the currency’s advances to be limited. Better than predicted figures on Current Account failed to boost the Euro; however, analysts predict that Manufacturing figures may help give a boost to the shared currency. Therefore, the outlook for the European economy depends on what this week’s PMI reports will show.

GBP/USD-Sterling Trades at Two-Month High
The British Pound rallied to a two-month high against the U.S. currency subsequent to the release of stellar Employment reports and better than anticipated data on Retail Sales. The U.K. announced that the number of individuals who filed applications for Jobless Benefits slipped more than forecast, although the level of Unemployment stayed at 7.8 percent in June. The Bank of England’s policy meeting minutes denoted that for now, policy makers were inclined to leave the cost of borrowing money at 0.5 percent and the asset purchasing program at the current level. However, the minutes showed that policy makers gave no clues about an interest rate decision. In the days ahead, the U.K. will release official numbers on growth for the second quarter.

USD/JPY-Japanese Are Buying More Bonds
The U.S. Dollar rallied versus the Yen on Friday on the possibility that the Federal Reserve may reduce easing by as soon as September. However, the Yen managed to advance over the course of last week on reports indicating that more Japanese investors purchased foreign bonds, a factor that fueled speculation that the Yen could appreciate even further. However, economists explained that the Obon Holiday has prevented investors from reacting to a recent string of economic releases. Analysts predict that as Japanese market investors return to work, it’s likely the Yen may go up, but much will depend on what takes place on the Nikkei. The latest sell-off of equities hasn’t been of much help. In addition, speculators will keep an eye on Prime Minister Shinzo Abe, who will likely have to decide on sales tax in the near future. Economists say that an increase may slow down the economy. This will be a very important week, as the FOMC minutes are expected for release on Wednesday and Federal Reserve members will meet in Jackson Hole for their yearly symposium on monetary policy.

NZD/USD- Earthquake Halts Trading
New Zealand’s Dollar rose against its U.S. peer, although the currency erased some of the gains after an earthquake suspended trading. The epicenter was in the town of Marlborough, but the tremors were felt in Wellington, the nation’s capital. While the damages were minor, the currency still managed to lose its momentum. In New Zealand, the week’s releases showed a jump in Retail Sales of 1.7 percent in the months between April and June.

Today’s Outlook
Today’s economic calendar is very light and shows that Australia will release the Monetary Policy Meeting minutes. And New Zealand will issue metrics on Inflation Expectations.