Daily Report: Market Volatility Expected To Continue

June has been quite a volatile month in the Forex market and it appears that the exchange won’t quiet down any time soon, especially as a string of important global economic reports are due out soon. Investors are anxiously awaiting the Bank of England, The Reserve Bank of Australia, the Swiss National Bank, and of course the U.S. Federal Reserve to issue their decisions on monetary policy. Much of that volatility has resulted from uncertainty over what the Federal Reserve will do next, especially following a flurry of economic reports published over the last few weeks.

Friday’s announcements revealed that Industrial Production in the U.S. remained unchanged in May after having dropped 0.4 percent in April. Consumer Confidence disappointed by posting a drop from 84.5 to 82.7 in June according to the University of Michigan’s Confidence gauge. Further reports confirmed that the Producer Price Index went up 0.5 percent last month, a factor that caused the greenback to erase some of its losses. In addition, the Core Producer Price Index which excludes items like gasoline and food climbed 0.1 percent just as expected. The hike in Producer Price Inflation prompted Gold Futures to finish higher on Friday, especially as market investors sought out the precious metal as a hedge versus inflation. Gold Futures for August delivery went up 0.9 percent and settled at $1,3390.05 on the Comex Division of the New York Mercantile Exchange.

The Euro traded mixed at the end of last week but weakened against the U.S. Dollar subsequent to the release of lackluster data out of the U.S. The shared currency dipped versus the greenback as risk appetite ebbed in the market on signs that U.S. economic recovery has slowed down and as the metrics increased uncertainty ahead of the Federal Reserve’s upcoming policy meeting. In the Euro region, the Standard & Poor’s affirmed Spain’s BBB credit rating and cited the Spanish government’s commitment to its fiscal reforms as the main reason. However, the S & P indicated that the outlook is still negative as the possibility exists that politicians may retrieve support from the current reform measures. The British Pound rose for a third week against the U.S. currency after data confirmed that Jobless Claims in the U.K. slipped more than anticipated in May, suggesting the country’s economy is improving.

The Yen advanced the most since summer of 2009 as the market’s volatility rose on speculation the Bank of Japan may implement new easing measures in the future. The Japanese currency rallied versus all of its counterparts given that the central bank’s Governor, Haruhiko Kuroda, refrained from extending the maturity dates on the loans it issued to other banks.

Lastly in the South Pacific, the New Zealand Dollar retreated from three-week highs versus its U.S. peer as uncertainty over the Federal Reserve’s next move bolstered the appeal of refuge monetary units like the greenback. In the meantime, the Reserve Bank of New Zealand announced its decision to leave the benchmark interest rate at 2.5 percent on Thursday. The bank’s governor, Graeme Wheeler, commented that the currency is still overvalued despite its recent declines. The Australian Dollar was also influenced by a drop in risk appetite brought on by uncertainty over the future of the U.S. monetary policy.

EUR/USD- Euro Rebounds Over The Weekend
The Euro rebounded against the U.S. Dollar on Sunday after slipping lower versus the U.S. currency on Friday. Market investors are focused on the Federal Reserve’s policy meeting which is scheduled for this week, and which promises to keep the level of volatility high. Speculation that the central bank may cut back the monthly asset purchases raised optimism and improved the appeal of high-risk assets. The 17-nation currency benefitted from comments suggesting the region’s economy will look “less worse” in the latter part of the year, and the economy may only contract 0.6 percent in the third quarter.
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GBP/USD- U.K.’s Unemployment Drops
The British Pound advanced for a third consecutive week against the greenback, sustaining the longest streak of increases since September after reports indicated that the U.K.’s Unemployment Claims dropped more than economists predicted in May, and suggesting the economy is rebounding. The Sterling went up to the highest level in over four months versus its U.S. peer as the gauge which measures Unemployment, UKUEILOR, showed a drop in April, increasing the possibility the Bank of England may refrain from expanding stimulus. According to the Office for National Statistics, Unemployment Claims dipped by 8,600 in May to 1.51 million.
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USD/JPY- BOJ Disappointed Speculators
The Yen rose the most since July of 2009 versus the greenback as investors decided to re-evaluate the Bank of Japan’s monetary easing measures that prompted the currency to hit a four-year low in May. Uncertainty over what the Federal Reserve may do next fueled demand for safe havens, further benefitting the Yen. Japan’s currency remained strong following steep declines in the Nikkei, and as a result of the failure by the BOJ to extend the maturity of bank loans. Market investors look forward to Friday, when BOJ governor Haruhiko Kuroda will deliver a speech.
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USD/CHF- Growth Revised Up
The U.S. Dollar slipped against the Swiss Franc on Friday over the possibility the Federal Reserve may put an early end to the current stimulus program, a factor that raised demand for the old-time favorite refuge currency. In Switzerland, the Secretariat for Economics revealed that it revised its economic growth predictions from 1.3 to 1.4 percent, but cautioned that the sovereign debt crisis of the Euro region is still a threat to the country’s economy. In the coming days, Switzerland will issue the Libor rate.
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Today’s Outlook
Today’s economic calendar shows that Japan will report on Capacity Utilization, Adjusted Trade Balance and Industrial Production. The U.K. will report on CPI, the House Price Index, PPI Input and Output. The Euro region will issue the ZEW Economic Sentiment. The U.S. will announce CPI, Core CPI, Housing Starts and Building Permits. New Zealand will publish the Current account.