Disappointing Data Halts USD

Data on the U.S. industrial production fell more than expected in April. The industrial data shows that in spite of a string of good news pointing toward a recovery in the U.S. economy, the overall picture is not uniformly strong. The industrial data, the weakest in ten months, immediately had a negative effect on the dollar index, DXY, which dropped 0,1%. The dollar is nevertheless extremely strong. Euro/USD trades at 1.2867 near a six-week low. USD/JPY is steady at 1.0224.

Fed Guessing Continues
The disappointing industrial production added to the buzzing debate on when the Federal Reserve (FED) will eventually start winding down its asset purchasing program tantamount to printing money. Positive news, as increased employment and retail sales have pointed toward an end to quantitative easing within the year. However, the industrial data fuels arguments for continued easing. Citing this, FED chairman Ben Bernanke’s speech over the coming weekend will certainly be watched intently.

The industrial data represented a limited setback for the dollar which, this month alone, has gained 3,8% against “safe haven” currencies such as the Swiss Franc and the Yen. The Australian dollar has lost 4,5%. Since the beginning of the year the USD has jumped 17,8 percent toward the Yen. Most analysts believe that the dollar shall continue to be strong, with the yen subsequently weakening. Some forecasts indicate USD/JPY at 124 at the year’s end.

The EUR/USD fell as deep as 1.2642 on Wednesday following presentation of the French GDP numbers, clearly indicating that France has slipped into recession. The rate of Germany’s robust economic growth is not sufficient to prevent the euro zone from contracting for the sixth quarter in a row. If the ECB follows up indications to lower its interest below zero (if the economy slows further), then the euro will probably suffer a broad sell-off. With the Cyprus crisis still fresh in mind, investors will, most likely, park their deposits outside of Europe.

Japan’s GDP rose 0,9% in the first quarter of 2013, expanding at its quickest pace in a year. Increased private consumption, and a steady rise in exports are seen as the first results of Prime Minister Shinzo Abe’s aggressive stimulus policies. The economy is also picking up in India where forecasts point to an increase in GDP on 5,5 – 6%.