The U.S. Dollar advanced against most of the majors as positive metrics issued by the Commerce Department reinforced the belief that the world’s biggest economy is expanding, especially as the real estate sector is showing signs of progress. The greenback was bolstered by stellar figures which indicated that New Home Sales climbed by 6.4 percent, much higher than economists anticipated. In the last week, the Federal Reserve released the minutes from its most recent policy meeting, which confirmed that the monetary authorities feel the economy is improving at a steady, but slow pace. The Fed also hinted that the benchmark interest rate is likely to stay at the current low for some time even after winding down stimulus. This will be a short week as the U.S. is observing Memorial Day in honor of their fallen soldiers, and the financial markets are closed. Gold Prices slipped 0.25 percent on Friday, but they gained 0.31 percent for the week. The general elections in the Ukraine remain in focus as investors continue to worry that Russia may intervene and make the situation worse. Futures for June delivery traded at $1,291.70 a troy ounce on the Comex Division of the New York Mercantile Exchange.
The euro plummeted against the sterling and the U.S dollar as market traders believe that recent disappointing economic announcements may push the European Central Bank towards taking needed steps to ensure that the region avoids a period of deflation. The British pound weakened against the U.S. dollar subsequent to Friday’s strong housing data, but advanced to a 17-month high versus the Euro, a factor that surprised many analysts. The Swiss Franc weakened to the lowest rate in over three months versus the greenback due to better than predicted metrics out of the U.S. The Swiss National Bank indicated that it’s facing a conundrum on how to handle the ceiling on the Euro exchange rate in light of the fact that the ECB may go ahead with more easing.
The yen dipped against the U.S. dollar following positive economic news on U.S. Housing. The yen remained weak after the Bank of Japan indicated that it won’t consider expanding stimulus at this time, especially as the economy appears to be withstanding a recent hike in sales taxes.
Lastly, in the South Pacific, Australia’s dollar plummeted to a three-week low against the greenback after the U.S. announced that the percentage of New Home Sales was higher than predicted. And in Australia, the minutes from the Reserve Bank’s policy meeting showed that the key cash rate will possibly be left on hold for a long time to come. Confidence remained fragile after the Standard & Poor’s indicated that the South Pacific nation’s AAA rating may be at risk unless the government implements budget reductions. The New Zealand Dollar also weakened against the U.S. dollar among signs the American economy weathered the impact that harsh winter conditions had on growth.
EUR/USD- Draghi In Focus
The EUR/USD declined further on signs that the European Central Bank could go forward with new measures to prevent inflation from dipping lower. The EUR/USD closed to the downside on Friday after data out of Germany disappointed investors when it revealed that the Business Climate Index slipped from 111.2 to 110.4 in May. For this reason, market traders believe that rate cuts could be the central banks next step. Meanwhile, the E.U. held Parliamentary elections and a non-partisan polling group suggested that backing for mainstream parties has declined by 65 percent, pointing to the fact that the U.K.’s Conservative Party has lost over 110 council seats in local elections as many voters opted for the Independence Party instead.
GBP/USD- BOE May Refrain From Making Changes
The GBP/USD slumped even though last week’s reports showed that Retail Sales rose, helping the GBP strengthen. The solid metrics bolstered further speculation that the Bank of England could consider increasing the interest rate, even though the bank’s Governor, Mark Carney reiterated that such a move wouldn’t materialize for some time to come. The Sterling struggled to surpass the psychological $1.7000 level despite the fact that fundamentals out of the U.K. confirmed that the British economy is faring better than that of the eurozone.
USD/JPY- Geopolitics Weigh On Sentiment
The USD/JPY gained even though the situation in several parts of the world continued to take center stage in the news. For starters, the Ukraine held general elections on Sunday, prompting market traders to worry whether Russia would meddle in the results. The coup in Thailand also weighed on sentiment, but did not impact the rise of the U.S. dollar. The greenback was bolstered by stellar metrics issued on Friday denoting that the housing sector finally shrugged off the impact of winter. This week, Japan will publish key economic indicators, which are slated to reveal the real effects of the recent sales tax hike. Retail Sales are expected to show a decline of approximately 12 percent on a month over month basis. Analysts say that although the Bank of Japan is achieving its inflation target with the raise of the sales tax, the fact that electricity and other staples have surged dramatically makes the bank’s victory somewhat hollow.
AUD/USD- S&P Warns About Rating
The AUD/USD traded lower due to a drop in iron ore, China’s economy and comments by the Standard & Poor’s. According to sources, the Chinese economy continues to slow down as the government transitions towards a new type of economy which is supposed to rely on output improvements. China’s authorities have indicated that they hope to reduce the government’s role in allocating sources of revenue, which will hopefully lead the nation towards economic growth. Meanwhile, on the data front, the Westpac Melbourne Institute Index which measures Consumer Sentiment declined by 6.8 percent to 92.9 this month after posting at 99.7 in April. The AUD/USD was also impacted as the S&P warned that the country could lose its coveted AAA ranking should the government ignore the need for a reduction of the budget.
Today’s Outlook
Today’s economic calendar shows that the markets in the U.K. are closed for a public holiday and the U.S. markets are closed in commemoration of Memorial Day. In the E.U., the President of the European Central Bank, Mario Draghi is scheduled to deliver a speech, and Japan will issue data on CSPI.