Daily Report: US Dollar Trading Stronger On Taper Talk

The U.S. Dollar traded significantly stronger against the majors as the chairman of the Federal Reserve, Ben Bernanke, indicated that the central bank may begin scaling back on monthly asset purchases by the end of this year. Policy makers are predicting that the country’s economy may expand between 2.3 and 2.6 percent in 2013 and that the Unemployment rate may dip to between 6.5 and 6.8 by the end of 2014. The greenback remained strong as Treasury yields increased and it climbed throughout the day absent of major economic releases, as speculators believed that the week’s indicators pointed to an economy that may no longer need monetary stimulus. In the days to come, investors will keep an eye on important U.S. economic releases, including Consumer Confidence, which are considered crucial gauges for determining whether U.S. economic recovery remains on track. And despite the strengthening of the U.S. currency, gold prices rose on Friday. This happened as speculators returned to the market after the precious metal hit the lowest price since 2010 during the early part of the day.

The Euro fell against the U.S. Dollar on the possibility the Federal Reserve may reduce stimulus later this year and it remained under pressure due to political problems in Greece. Despite a number of positive economic reports issued last week out of the Euro region, investors plan to keep an eye on releases regarding German IFO, Retail Sales and Unemployment to assess whether the economy is improving. Friday’s Current account figures disappointed, especially as they indicated that the Surplus contracted. In Greece, the Democratic Left party resigned from the coalition government as a sign of protest over massive public sector layoffs. This left the government with a small majority in Parliament and destabilized the nation’s political outlook. And while the International Monetary Fund indicated that it would not suspend funding to Greece, it gave Athens until July to agree on the terms of the bailout. The British Pound slumped against the greenback due to mounting expectations that the central bank will soon cut back on stimulus measures. On Thursday, U.K. official metrics showed that Retail Sales increased in May and were higher in comparison with the previous year.

The Yen also traded lower against its U.S. peer and continued to trend to the downside as the Bank of Japan’s Governor, Haruhiko Kuroda, suggested that uncertainty surrounding the nation’s economy remains high.

Lastly in the South Pacific, Australia’s Dollar reached the lowest price since fall of 2010 versus the greenback as demand for the U.S. monetary unit increased on the possibility the Federal Reserve will cut back on monthly bond purchases. Sentiment towards the Aussie was also dampened by the fact that Manufacturing plunged to a nine-month low, and as China reported that its Manufacturing sector slowed down even more. New Zealand’s Dollar reached a one-year low versus the U.S. currency following comments by the Federal Reserve’s Chairman regarding the bank’s intentions to cut stimulus if the economy improves further; and it remained weak as data revealed that the nation’s Gross Domestic Product climbed 0.3 percent rather than the predicted 0.6 percent.

EUR/USD- Greek Politics Weigh On Euro
The Euro traded at two-week lows against the U.S. Dollar on Friday just days after Fed Chairman Bernanke indicated that policy makers could begin to cut back on the monthly bond purchases if the U.S. economy continues to show signs of recovery. The shared currency came under further pressure as political troubles contributed to destabilizing the Greek government. Meanwhile, European equities sustained a big decline, causing investors to worry over the effects this could have on banking.
EUR/USD" width="601" height="381">
GBP/USD- Pound Trades Weaker
The British Pound finished the week lower against the U.S. Dollar despite positive economic reports issued on Thursday which showed that Retail Sales climbed 2.1 percent in May, surpassing forecasts for a 0.8 percent advance. YoY, they posted 1.9 percent higher, and bolstered speculation that the U.K.’s recovery is gaining momentum in the second quarter of 2013. In the coming week, investors will pay close attention to data regarding the Housing Sector.
GBP/USD" width="599" height="380">
XAU/USD- Gold Slumps The Most Since 2010
Gold Futures rallied on Friday after prices touched the lowest since September of 2010 earlier in the day. The precious metal plunged on Thursday following the Federal Reserve Chairman’s speech in which he indicated that the bank may start slowing bond purchases by the end of the year. Gold prices dipped more than 5 percent, but rose 0.75 percent by the end of Friday. Gold Futures for August delivery settled at $1,295.55 a troy ounce on the Comex Division of the New York Mercantile Exchange.
XAU/USD" width="599" height="380">
AUD/USD- Aussie Hits New Lows
Australia’s Dollar traded at the lowest price since September of 2010 against the greenback on the likelihood the U.S. central bank may begin reducing stimulus. Demand for the Aussie was low after China reported that the HSBC’s Manufacturing Purchasing Manager’s Index declined from 49.2 to 48.3 this month given a decline in new orders, suggesting that the sector has slowed down even more than anticipated. The Aussie failed to erase losses amid speculation the Reserve Bank may cut the benchmark interest rate, as suggested by the latest Monetary Policy Meeting minutes.
AUD/USD" width="602" height="381">
Today’s Outlook
Today’s economic calendar shows that the Euro region will issue German Business Expectations, Italian Consumer Confidence and Trade Balance. Japan will report on CSPI.