Daily Report: EUR/USD, GBP/USD, USD/JPY and USD/CAD

The U.S. Dollar advanced against the majority of its peers as risk appetite was dampened by a number of factors. For starters, the publication of the Bank of England’s policy meeting minutes weighed on the Pound. In addition to this, a recent decline in Japan’s GDP raised fears of possible increases in quantitative easing. And lastly, newly released Euro-zone economic reports were disappointing, which caused the 17-nation currency to weaken. In the U.S., while existing home sales rose the most in two years, the metrics were still lower than what economists had been expecting. According to statistics, existing home sales climbed by 190,000 while the market expected an increase of 270,000. Other reports showed that MBA mortgage applications fell by -4.5 percent.

The Euro consolidated but remained weak for the remainder of the day, especially after PMI reports suggested that the region’s economy had slowed down. Lackluster print caused investors to worry that the Euro-zone may be closer to a recession than previously thought. Investors also speculated on whether the European Central Bank might be inclined to cut the costs of borrowing money. The Euro made little change against the Yen despite an announcement by Fitch indicating that it had downgraded Greece’s credit rating from CCC to C, citing the likelihood of a default as the main reason. The Pound declined drastically against the majority of its peers after the Bank of England published the minutes from its last policy meeting. According to these, two of the bank’s officials were in favor of more asset purchasing than what they had agreed on. The currency dropped because markets had expected the minutes to show that the majority of the policy makers were against further easing. The opposite results raised fears that the country’s economy may have slowed down despite the recent stellar data.

The Yen fell for a fifth consecutive day against the U.S. Dollar as demand for safety declined, and as market investors continued to worry whether the Bank of Japan will institute further monetary easing to try and boost economic growth. Economists are concerned that since Japan has the biggest level of public debt, in fact 198 percent of its GDP, it may be the next “Greek tragedy.”

And lastly, better than anticipated economic data out of the U.S. prompted the Australian and New Zealand Dollars to advance. The Aussie was also supported by economic reports which showed that the country’s wages rose 1 percent.

EUR/USD- Economic Data Disappoints

The Euro remained weak as economic releases showed that composite PMI fell below 50, suggesting that the region may be close to a recession. Germany mimicked the Euro-zone’s pace of growth although figures showed PMI came in above 50. Other metrics indicated that Italian CPI was unchanged at 3.4 percent and industrial new orders dropped less than anticipated to -1.7 percent. In the meantime, investors acted with caution amid uncertainty on whether Greece will be able to avoid a default. Sentiment turned even more dovish after Fitch reduced Greece’s credit rating by three notches as the agency considers that the idea of cutting the country’s debt burden by means of a debt exchange with private creditors still counts as a default.

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GBP/USD- Sterling Declines After Minutes Released

The British Pound declined after the Bank of England released its minutes from the last policy meeting. These showed that both Adam Posen and David Miles were in favor of implementing an additional 75 bn Pounds of asset purchases rather than the 50 agreed upon. This of course brought on fears that the central banks may expand its quantitative easing in the future. Investors are concerned that the minutes reveal the bank’s stance in regards to the economy. The Sterling dipped to a 10-week low against the Euro after the release of the Minutes.

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USD/JPY- Yen Continues To Spiral Downward

The Japanese currency continued to spiral to the downside as investors grew concerned the Bank of Japan may implement further quantitative easing to boost growth and reach its target 1 percent inflation by the year 2013. Economists are worried that the price of crude oil will have a negative impact on Japan’s economy since the country is heavily dependent on it as most nuclear plants were closed after the earthquake. Analysts believe that a hike of 30 percent in fossil fuels could erase the country’s current account surplus for 2012. In fact, they believe that Japan may be the next crisis the world will have to focus on.

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USD/CAD- Loonie Falls Below Parity

The Canadian Dollar dipped below parity with the greenback as risk appetite declined and equities fell on speculations global growth may slow down. The Loonie slipped for a second consecutive day as analysts believe the U.S. currency will gain against its peers.

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Today’s Outlook

Today’s calendar shows that the U.K. will report on BBA Mortgage Approvals and CBI Industrial Trend Orders. The E.U. will release the German IFO Business Climate Index, German Current Assessment and German Business Expectations. The U.S. will report on Initial and Continuing Jobless Claims.