The U.S. dollar traded mixed, but weakened against several majors subsequent to the release of less than stellar Non-Farm Payroll reports of Friday. The greenback traded steadily versus the euro as Foreign Exchange speculators navigated the market cautiously in anticipation of Janet Yellen’s first testimony. Mrs. Yellen, who now occupies the position of Federal Reserve Chairperson, will offer statements on the bank’s monetary policy and may offer insight on what policy makers may decide now that the U.S. has released weak metrics on employment, trade and ISM Manufacturing. Meanwhile, Gold Prices rallied as a result of record-high demand from Chinese consumers and a shift in speculation over whether the Federal Reserve will accelerate cuts to the bond-purchasing program.
The euro advanced against the U.S. currency during early Tokyo market hours, as Germany posted positive metrics denoting an increase in the Trade Surplus, but it weakened after the several E.U. nations confirmed a decline in Industrial Production. The euro’s earlier advance was capped as the German Courts recommended that the european Central Bank’s plan to buy an unlimited number of bonds from those nations in debt may not be legal. But ultimately, they left the final decision up to the european Court of Justice. The British Pound slipped versus the greenback on the possibility that the Bank of England may confirm that it will leave the benchmark interest rate unchanged when it issues the economy’s prospects report this week. The Sterling weakened further as economists anticipate that Retail Sales may have advanced at a quick pace. The currency has gained 7.9 percent over the past year on speculation that the U.K. will show economic growth, which may prompt the Bank of England to raise the rates.
The yen advanced for the first time in three days against the greenback and the euro following releases confirming that France and Italy sustained declines in Industrial Output. The Japanese yen also climbed versus the majority of its most traded counterparts, shrugging off negative reports indicating that the Trade Deficit reached a record high. The yen was supported by risk aversion even as some economists are predicting that Japan could become more dependent on capital imports, a factor that won’t benefit the nation in the long run.
Lastly, in the South Pacific, Toyota announced that it will shut down its automobile manufacturer in Australia, causing the Aussie currency’s decline. The Australian dollar was also weighed down as investors anticipate today’s government release, which may reveal that the rate of Unemployment surged. The New Zealand dollar rose on Friday and remained strong as weak economic news out of the U.S. forced investors to reassess the possibility of further Fed tapering, and on the likelihood that the Tasmanian nation may see an increase in the cost of borrowing money.
EUR/USD: Region Sees Drop In Output
The EUR/USD traded up and down, but fell as the region reported a decline in Industrial Production with France posting a drop of 0.3 percent, the third fall in four postings, suggesting that the sector is weakening. Italy also indicated that output went down 0.9 percent after sustaining gains. Economists predict that Gross Domestic Product may have inched up a mere 0.2 percent in the last quarter of 2013, while Spain, which has sustained a record long recession, is expected to denote a major recovery. The euro-zone’s GDP release will be issued on February 14. Other announcements revealed that German Trade Surplus now stands at 198.9 billion euros, which is the highest amount on record.
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GBP/USD: Investors Await BOE’s Next Move
The GBP/USD fell on speculation that the British central bank may leave the interest rate unchanged for some time to come. The economy has shown signs of steady growth, and Friday’s release on Manufacturing denoted that the progress has not cooled off. Manufacturing, which accounts for a major percentage of the economy and is considered a key indicator, showed that output expanded 0.3 percent since November, when it slipped 0.1 percent. While the rise was significant, it fell short of the expected 0.6 percent hike. This week, investors will pay close attention to the Inflation reports which will hopefully shed light on what the Bank of England may decide next.
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XAU/USD: Chinese Demand Surges
The XAU/USD rose to a two-week high as market traders await Janet Yellen’s first testimony before Congress in an effort to gain insight into what the Federal Reserve may decide on monetary easing. Contracts for April delivery traded at $1,277.70 a troy ounce on the Comex Division of the New York Mercantile Exchange as investors reassess the possibility of additional bond purchasing cut-backs. Meanwhile, demand for the precious metal surged dramatically in China as buyers took advantage of a previous decline in prices. The World Gold Council has stated that China is now the biggest consumer of gold, even more so than India, suggesting that demand has shifted to the East. Analysts have indicated that the hike in demand contributed to the limited drop of the XAU/USD.
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USD/JPY: Japan Posts Bigger Deficit
The USD/JPY weakened despite lackluster news out of Japan indicating that the Current Account posted a larger deficit. The pair dipped as Japan started the week with lackluster reports. Current Account fell to a four-month low and Consumer Confidence declined in the month of January. According to the official releases, the deficit for the Current Account rose to 6.386 billion yen, which is much higher than predicted. The Current Account provides a picture of demand for the yen; a wider deficit reflects a decline in purchases of goods by foreign buyers. Consumer Confidence slipped to 40.5, missing estimates for it to post at 43.9. This was the lowest posting since the end of 2012. Those who keep track of the economy also indicated their drop in confidence. And lastly, Bank Loans came in as forecast. In the U.S. Friday’s reports confirmed that employers only created 113,000 payrolls, but the rate of Unemployment fell to 6.6 percent, which was the lowest in more than five years.
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Daily Outlook: Today’s economic calendar shows that the Federal Reserve’s Chairperson, Janet Yellen is scheduled to testify before Congress. Australia will report on Westpac Consumer Confidence. Japan will issue data on Core Machinery Orders and Tertiary Industry Activity Index. And China will release the Trade Balance.