Major Currency Pairs: Analysis For July 1, 2013

European politicians greeted a report of U.S. wiretappings of European Union buildings with caution and concern, demanding explanations and speaking of a possible souring of transatlantic relations. Schulz said he had demanded a clarification from the U.S. after German magazine Der Spiegel said the National Security Agency had wire tapped diplomatic mission buildings in Washington and New York, infiltrated computer networks and described the 27-nation bloc as a “target.” The German magazine, citing classified documents in the possession of former NSA contractor Edward Snowden, also said the NSA had wire tapped the United Nations building in New York. The NSA was more active in watching Germany than other EU countries, Der Spiegel reported today. The European Commission has “immediately been in contact with the U.S. authorities in Washington, D.C., and in Brussels and confronted them with the press reports.
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GBP/USD
The pound dropped for a second week against the dollar as Bank of England Governor Mervyn King said the economy was “too weak to be satisfactory,” underpinning bets the central bank will keep monetary policy loose. Sterling had its biggest weekly decline versus the euro in a month as central bank policy maker David Miles renewed his call for additional asset purchases that tend to devalue a currency. U.S. policy makers this week also sought to ease concern they are moving toward ending quantitative easing. U.K. government bonds fell this week, pushing yields to the highest since October 2011. Central bankers have been trying to calm markets after a fairly volatile period,” said Kasper Kirkegaard, a senior foreign-exchange analyst at Danske Bank A/S (DANSKE) in Copenhagen. “It will be difficult for the market to price in expectations of tighter policy in the U.K., which means that there should be some downside risks for sterling against the dollar. The pound dropped 1.5 percent.
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USD/JPY
The yen fell the most this year versus the dollar since 1982 as Japan’s Prime Minister Shinzo Abe implements plans to boost economic growth and rid the nation of deflation. Federal Reserve discussions of reduced monetary stimulus also boosted the greenback against Japan’s currency. The yen fell 14.3 percent to 99.15 per dollar. Japan’s housing starts rose for a ninth month in May, the longest streak since the period ended February 2011, as the government’s pledge to end 15 years of deflation fueled expectations for a recovery in property prices. Construction companies broke ground on 14.5 percent more homes last month from a year earlier, according to a report released today by the Ministry of Land, Infrastructure, Transport and Tourism in Tokyo. Housing starts were expected to rise 6.1 percent.
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USD/CAD
The Canadian dollar fell to almost the lowest since 2011 as a slowdown in gross domestic product growth in April highlighted the nation’s diverging economic prospects from the U.S., its largest trading partner. Output rose 0.1 percent to an annualized C$1.57 trillion ($1.50 trillion) after a 0.2 percent gain in March, Statistics Canada said in Ottawa. The currency extended a loss after comments by two U.S. Federal Reserve officials fueled bets on a tapering of asset buying. Canada’s dollar represented 1.57 percent of the $6.05 trillion in official foreign-exchange reserves in the first quarter, according to the International Monetary Fund’s first data on global holdings of the currency. The Canadian economy is still muddling along, trying to reach 2 percent growth.
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