Daily Report: EUR/USD, GBP/USD, USD/JPY And XAU/USD : July 01, 2013

The U.S. Dollar continued its rally against the majors as both the month and the second quarter concluded. This took place as Federal Reserve officials attempted to clarify how they’ll begin to cut back on stimulus, provided the data shows improvement in the Employment sector. The greenback gained on Friday after the central bank’s governor, Jeremy Stein, suggested policy makers may issue a decision by as early as September. Meanwhile, economic reports showed that Consumer Confidence came close to a six-year high in May, posting an increase from 82.7 to 84.1. Other reports indicated that Gold Futures gained sharply at the end of last week as investors took advantage of the market’s movements after gold prices dipped to the lowest since August of 2010. But despite the precious metal’s performance on Friday, gold still managed to depreciate 4.8 percent for the week and 23 percent for the quarter, marking its largest quarterly devaluation to date.

The Euro advanced versus the U.S. Dollar as Germany released inflation metrics which met expectations. The shared currency reversed losses after the European Central Bank issued comments on Thursday, suggesting it plans to devote additional funding in hopes of reducing the region’s youth Unemployment rate. Leaders from the E.U. bloc met for a two-day summit during which they discussed the high unemployment in nations like Spain, Portugal, Italy, Ireland, France and Greece. The Euro erased some of its gains after the International Monetary Fund indicated that the currency comprised the smallest percentage of allocated reserves in a vast number of central banks. And while the region saw a dramatic hike in Confidence, the sentiment indices remained in the negative given that the E.U. is still experiencing a recession. The British Pound gave up some of its pips against the greenback after the Bank of England’s Governor, Mervyn King, indicated that the nation’s economy is still weak, bolstering wagers the bank will maintain the current loose monetary policies. The Sterling sustained the largest drop against the Euro after the bank’s policy maker, David Miles, advocated for an expansion of asset purchases, but it recouped its footing after reports confirmed that Home Prices stabilized. It strengthened further as the U.K. government unveiled plan to invest in renewable energy.

The Yen plunged the most since 1982 against the greenback as Japanese Prime Minister, Shinzo Abe, announced plans to improve economic growth and rid the country of deflation. Data out of Japan revealed that Consumer Prices stopped declining, while Industrial Production and Retail Sales both posted above forecasts.

Lastly in the South Pacific, Australia’s Dollar headed for the largest quarterly decline since 2008 on the possibility the Federal Reserve will begin to taper stimulus, a factor that ebbed demand for the country’s assets. The New Zealand Dollar gained in tandem with Asian equities.

EUR/USD-Banks Keep Low Euro Reserves
The International Monetary Fund reported that the U.S. Dollar accounted for 62.2 percent of the allocated currency reserves in central banks while the Euro only comprised 23.7 percent. The announcement caused the shared currency to decline versus the greenback. The Euro had advanced earlier, when the E.U.’s Economic Sentiment Index showed an improvement from 89.5 in May to 91.3 in June. While the numbers rose, they remained below 100, suggesting consumers are still concerned over the state of the economy as the recession rages on. The reports also indicated that some of the hardest-hit countries like Italy, Spain and France sustained improvements. However, the Services Confidence dropped by 0.3 percent, denoting that confidence in the Industrial sector only climbed slightly.

The shared currency remained under pressure as the President of the European Central Bank, Mario Draghi stated that monetary policy will continue to be “accommodative” for the time being. This week, investors will focus on the ECB as it’s scheduled to issue a decision regarding the benchmark interest rates.

GBP/USD-Signs Of Weakness Weigh On Pound
The British Pound fell for a second consecutive week against the greenback after the Bank of England’s governor, Mervyn King, issued comments on the state of the economy and described it as being ” too weak to be satisfactory.” His words increased speculation that the central bank may consider expanding the Q.E. program, especially after Thursday’s metrics indicated that the economy grew at 0.3 percent, down from the initially reported 0.6 percent. The Sterling erased some of its losses as the National HPI showed that House Prices stabilized and as other releases revealed that activity in the Services sectors climbed 0.8 percent in the second quarter of 2013 after expanding 0.5 percent in the initial three months.

USD/JPY-Signs Point To Recovery
The Yen plunged the most this year against the greenback as economies around the globe showed signs of recovery. On the data front, Japan reported that Industrial Output climbed 2 percent in June, while economists only forecast a 0.2 hike. The solid metrics improved the outlook and pointed to strong growth. However, analysts believe it may take some time yet for prices to rise even as the government forges ahead with plans to bolster growth and rid the country of deflation.

XAU/USD- Gold Declines the Most
Gold prices dipped below $1,200.00 as the month ended, showing the biggest decline in years. The precious metal touched a 34-month low on the New York Mercantile Exchange following the Federal Reserve’s comments regarding reducing stimulus. However, it rebounded and jumped the most in four weeks as demand for jewelry, bars and coins rose. The London exchange indicated that Gold Futures slipped 25 percent for the quarter, and Bullion for immediate delivery was set to sustain the biggest plunge since 1920. Gold Futures for August delivery settled at $1,223.70 on the Comex Division of the New York Mercantile Exchange.

Today’s Outlook
Today’s economic calendar shows that Switzerland will issue the SVME PMI. The Euro-zone will report on Manufacturing PMI, CPI and Unemployment. The U.K. will release data on Manufacturing PMI, Mortgage Approvals and M4 Money Supply. And the U.S. will publish the ISM Manufacturing Index.