Major Currency Pairs Analysis: ECB Sees Signs Of Recovery

European Central Bank Governing Council member Christian Noyer said there are “encouraging signs” of recovery. French production declined 0.4 percent after a 2.2 percent surge in April, national statistics office Insee said in Paris today. Economists forecast a 0.8 percent decrease, Italian output rose for the first time since January. French manufacturing output has gained 0.6 percent over the past three months, bolstered by a 5 percent increase in production of transport materials and an 8.1 percent jump in refining, Insee said. Today’s data indicate the economy may have grown in the second quarter after shrinking 0.2 percent in the first three months of the year, according to Unaccredited MIB and BNP Paribas SA.
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GBP/USD
The pound strengthened from a three-year low against the dollar amid speculation a selloff in the past week was excessive before minutes of this month’s Bank of England monetary policy meeting are released next week. Sterling dropped to the weakest since June 2010 yesterday when a report showed U.K. manufacturing unexpectedly shrank in May, casting doubt on the strength of the recovery. Consumer-and producer-price inflation reports are scheduled for July 16, with the details of Mark Carney’s first meeting as Bank of England governor due the following day. The dollar fell versus most major peers today before Federal Reserve Chairman Ben S. Bernanke speaks on the economy. U.K. government bonds rose. The pound seems to be finding some support against the dollar after the recent decline,” said Roberto Mialich, a currency strategist at Unaccredited SpA (UCG) in Milan. “But that doesn’t change a longer-term outlook that sterling should remain under pressure because of the Bank of England’s policy.
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USD/JPY
The BOJ is very reluctant to take any small steps,” chief economist at Dai-ichi Life Research Institute said. “They are going to hold firm for a while unless something really big happens that forces them to change their price outlook. Economists are ditching forecasts for the Bank of Japan to further expand its record easing this year amid signs that a recovering economy may spur inflation. Governor Haruhiko Kuroda spurned extra steps to limit bond-market volatility in June, convincing more analysts and investors he will refrain from stepping up stimulus following his opening salvo in April. Forecasts due at the end of this week’s policy meeting will give the board’s latest view on how quickly he and Prime Minister Shinzo Abe can push the nation toward a 2 percent inflation goal.
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USD/CAD
Canada’s currency rose for a third day as Federal Reserve meeting minutes showed divisions among policy makers about the timeframe for withdrawing monetary stimulus known as quantitative easing. The currency had fallen to an almost two-year low after Fed Chairman Ben S. Bernanke said after the June 19 meeting the central bank may trim its bond-buying this year and halt it around mid-2014 if economic performance tracks its forecast. Crude oil, Canada’s biggest export, reached its highest level in 15 months amid declining stockpiles. The Bank of Canada sold five-year notes. The Canadian dollar rose 0.2 percent to C$1.0510 per U.S. dollar.
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