USD Declines As Investors Seek Other Refuge Currencies

Despite the lack of major economic releases to drive the U.S. dollar, the greenback declined against the majority of its peers as investors sought out other refuge currencies like the yen. Market investors have grown concerned over the fiscal negotiations in Washington and remain uncertain about the country’s monetary policy. Worries that U.S. lawmakers may not come to a consensus during the upcoming debates to raise the Federal government’s debt ceiling raised demand for the U.S. dollar early in the day, but speculators changed their minds and opted for the yen during the afternoon trading session.

The Canadian dollar rallied for a second consecutive day versus its American peer as data indicated that Business Activity increased more than anticipated in December, signaling that Canada’s economy is still growing at an accelerated pace. The loonie was supported by the Ivey Purchasing Manager’s Index which confirmed that it was now in expansion territory.

The euro advanced against the U.S. dollar and erased earlier losses brought on by fear the European Central Bank may decide to reduce interest rates in order to promote economic recover. The euro was also weighed down during the early trading session when analysts predicted that economy would contract by 0.1 percent this year as Gross Domestic Product shrunk by 0.4 percent in 2012.

European Central Bank policy makers are expected to convene on Thursday during which time they will decide on the cost of borrowing money. Investors are anxiously awaiting the release of the Unemployment figures due out today. The British Pound remained steady against the greenback on speculation that the U.S. debt ceiling negotiations may run into some difficulties.

The yen climbed against the U.S. dollar, after having sustained the longest losing streak in 24 years, despite the possibility the Bank of Japan will increase stimulus this month. According to sources, the Japanese government is expected to announce another 12 trillion yen ($137 billion) in fiscal stimulus to bolster the economy.

Lastly, the Australian dollar strengthened against the majority of the majors on the possibility that Japan will raise spending in order to fuel growth. The aussie gained versus the New Zealand dollar on speculation this week’s reports will show improvements in Retail Sales and Building Approvals.

EUR/USD- Euro Rebounds From Close To 3-Week Low
The euro advanced against the U.S. currency, but fell early in the day, as investors continued to worry the region’s economy may be faltering. But the shared currency received some support after the Sentix Index of Investor Confidence posted at -7.0 in January, the highest it has been at since February of 2010, while analysts expected it to be at -15.0. Other data indicated that the region’s Producer Price Index fell 0.2 percent in November, defying forecasts for a 0.1 percent rise. However, the markets were not affected by the release.
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GBP/USD- Cameron Predicts Tough Year
The British pound remained steady against the greenback while worries over the fiscal negotiations and the U.S. monetary policy intensified. In the U.K., government bonds climbed for the first time in more than one week after Prime Minister David Cameron predicted that the country would face a tough economic year.

This fueled the demand for the benchmark yields. Mr. Cameron’s comments were supported by data which showed that Job Security, according to the Index published by Lloyd’s Banking Group Plc., fell 4 points to -22 in December. This is the lowest it’s reached since February. Furthermore, the gauge for Consumer Inflation expectations climbed to the highest since the start of 2011.
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USD/JPY- Yen Climbs On Demand For Refuge
The yen advanced against the U.S. dollar as traders remained cautious ahead of the debt ceiling negotiations in Washington, and as investors anticipate the central bank meetings scheduled for this week. The yen was supported by risk aversion in the market despite the possibility the Bank of Japan will increase stimulus to bolster growth. The Japanese currency advanced as analysts suggested the monetary unit dropped too quickly.
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USD/CAD- Canadian Economy Advances
The Canadian dollar rose against the U.S. currency as Canada’s Ivey Purchasing Manager’s Index posted at 52.8 last month, after it read at 47.5 in November. According to analysts, this suggests the U.S. recovery is spreading across the border or at least investors are positive the U.S. economy is prompting factories to increase production and hiring.

The figures showed that the index is now in expansion territory as Business activity gained momentum. The loonie was also supported by news that crude oil, the country’s biggest export climbed 0.2 percent and traded at $93.23 per barrel in the New York Mercantile Exchange.
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Today’s Outlook
Today’s economic calendar shows that Switzerland will report on the Unemployment Rate. The E.U. will release data on Retail Sales and the Unemployment Rate, as well as on German Factory Orders. New Zealand will publish Building Consents. Australia will issue the Retail Sales and HIA New Home Sales.