Daily Report: US Dollar Advances On Anticipation Of Positive Data

The U.S. Dollar advanced against most of its peers in anticipation of today’s economic reports on House Prices and Durable Goods Orders which are both expected to show improvement and therefore provide further support for the Federal Reserve decision to begin cutting back on monthly asset purchases. On the data front, a release confirmed that Existing Home Sales rose 4.2 percent, up from 4.97 million to 5.18 million units in May, which exceeded prior forecasts for a 0.6 percent hike. The greenback benefitted from demand for safe havens, especially after Chinese stocks declined the most in four years. However, it retreated from session highs against the Yen amid concerns over comments by officials from China’s People’s Bank who indicated that lenders must implement further measures in order to manage liquidity. Meanwhile, Gold Futures dipped yesterday and came close to last week’s 33-month lows on speculation the Federal Reserve may reduce stimulus soon. Futures for August delivery settled at $1,288.35 a troy ounce on the Comex Division of the New York Mercantile Exchange. According to analysts, it appears that gold prices have been fluctuating in accordance with investor expectations on the Federal Reserve. Gold prices were also weighed down by comments from Goldman Sachs, which reduced the outlook for gold prices for 2013 and 2014, citing improvements in the U.S. economy as the main reason.

The Euro declined against the U.S. Dollar although it managed to recover some of its losses. The shared currency failed to rebound completely despite positive German IFO reports and it remained under pressure as an official from the European Central Bank suggested the member nations should not count on low interest rates for long. The political situation in Greece remains tense as Athens has requested new terms for its bailout –another factor that prevented the 17-nation currency from advancing. The British Pound traded close to three-week lows against the greenback, as demand for the U.S. monetary unit was high given expectations that the Federal Reserve may start scaling back on easing measures. The Sterling was also affected by a lower demand for risk assets caused by concerns over a potential “credit crunch” in China.

In Japan, investors grew worried over comments by the People’s Bank of China, which indicated that officials weren’t in favor of increasing liquidity. However, demand for refuge prompted Japan’s currency to trade higher against the U.S. Dollar.

Lastly in the South Pacific, Australia’s Dollar dropped as much as 0.7 percent and traded at the lowest level since September of 2010 days after the Federal Reserve indicated that it may begin slowing quantitative easing by the end of 2013 while aiming to put an end to it by the middle of 2014 should the U.S. economy continue to show improvement. But demand for both the Aussie and New Zealand Dollars increased after officials from the People’s Bank of China suggested that the country ought to “fine tune” policy and perhaps even opt for looser monetary practices.

EUR/USD- Market Disregards IFO
The Euro remained under pressure against the U.S. Dollar on Monday as investors continued to speculate on whether the Federal Reserve will begin cutting back on stimulus any time soon. And while it recovered some of its overnight losses, it did not continue to advance despite the fact that the German Business Climate Index revealed an improvement as it posted at 105.9 in June, up from 105.7 in May. Other releases indicated that yields on Spanish 10-year bonds climbed above 5 percent for the first time in close to three months, and this dampened sentiment towards the shared currency. In addition, Greece’s politicians met to discuss the possibility of “reshuffling the cabinet” as the Democratic Left party resigned from the coalition government.
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GBP/USD- Sterling Weakens On Low Demand
The British Pound hovered close to three-week lows against the greenback as demand for high risk assets remained subdued in anticipation of today’s economic reports out of the U.S. which are expected to show improvements, and therefore support the Federal Reserve’s plan to cut back on stimulus. In the U.K., the Treasury managed to reach an agreement with all cabinet members to proceed with budget cuts in the sum of 11.5 billion Pounds. This took place despite the fact that the Chancellor of the Exchequer plans to unveil a plan to commit funds for the creation of new projects in an aim to bolster growth.
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USD/JPY-Yen Benefits From Haven Demand
Comments by the People’s Bank of China fueled demand for safe havens, benefitting Japan’s Yen against the greenback. Investors have grown concerned over the financial stability of Chinese banks especially after officials from the PBOC said that lenders ought to raise their requirements in order to manage liquidity; they also suggested the bank may make adjustments in monetary policy if needed. The statement came about days after the bank had to implement measures to ease a credit crunch, and as the gauge which measures interbank fund availability climbed to the highest level since 2003.
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AUD/USD- Aussie Plunges 0.7 Percent
Australia’s currency dropped as much as 0.7 percent reaching the lowest since 2010 as the spread between the Aussie’s 3 and 10-year yields widened to the most since the start of 2010. The currency failed to rebound as the nation’s Prime Minister indicated that the exchange’s further decline would contribute to balancing out growth. He also suggested that this would bolster economic expansion in non-mining sectors.
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Today’s Outlook
Today’s economic calendar shows that the U.K. will report on BBA Mortgage Approvals and the CBI Distributive Trades Survey. The U.S. will release data on Core Durable Goods Orders, Durable Goods Orders, the House Price Index, New Home Sales and CB Consumer Confidence.