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US$ Falls Versus Euro for First Time in 4 Days

The U.S. dollar fell across the board and weakened against the Euro for the first time in four days as stocks rose amid renewed demand for higher-yielding assets.  The greenback weakened yesterday afternoon as minutes from the last Federal Reserve meeting showed some policy makers felt additional stimulus may be needed.  The U.S. currency also slid against the Australian and New Zealand dollars after China’s economic growth exceeded analysts’ estimates, boosting higher-yielding currencies.  China’s GDP increased 9.5% in the second quarter from a year earlier, beating estimates for a 9.3% print.  Industrial output advanced 15.1% in June, the most since May 2010.  The strong data caused Asian stocks to rally 1.0%, sapping demand for the safe-haven dollar.  Meanwhile, the economic docket showed that prices of goods imported into the U.S. dropped in June for the first time in a year as oil and food expenses retreated.  The 0.5% fall in the import-price index followed a revised 0.1% gain in May, according to the Labor Department.  Falling costs will benefit companies that are dealing with more expensive inputs eating into profit margins.  Later today, Fed Chairman Ben Bernanke is scheduled to begin two days of testimony in Washington on monetary policy and the outlook for the economy with a visit to the House Financial Services Committee.  He will appear before the Senate Banking Committee tomorrow. 

The Euro gained against most of its rivals on renewed global risk appetite.  Indeed, the Stoxx Europe 600 Index snapped a run of three straight declines, rising a modest 0.5%.  In addition, Italian and Spanish bonds rose for the second straight day, somewhat easing concern that the region’s debt crisis may spread beyond Greece, Ireland and Portugal to larger economies.  The Euro’s gains were hampered as Moody’s cut Ireland’s credit rating to “junk” or non-investment grade yesterday afternoon.  At the same time, Eurozone industrial production in May registered at 4.0%, failing to meet expectation of 4.8% growth.

The Japanese yen held a tight range versus the U.S. dollar overnight, but fell against its other counterparts as stocks rose and amid speculation Japan will sell its currency again to support exporters.  Finance Minister Yoshihiko Noda said the yen’s moves have been “a bit one-sided.”  Japan’s Chief Cabinet Secretary Yukio Edano echoed Noda’s comments, saying rapid foreign-exchange moves were not “desirable.” The comments have led investors to be cautious about another intervention.  Group of Seven nations jointly sold Japan’s currency on March 18^th after the yen surged to a postwar record, threatening recovery from the March 11^th earthquake and tsunami. 

The British pound pushed higher against the U.S. dollar on increased risk assumption, but fell against the Euro as a report showed the number of Britons filing jobless-benefit claims increased at the fastest pace in more than two years, fueling concern the economic recovery is stalling.  Jobless claims rose by 24,500 last month, the biggest increase since May 2009, the Office for National Statistics said today in London.  The median forecast of economists was for a gain of 15,000.  The data follows reports yesterday that showed inflation unexpectedly slowed and retail sales slid, prompting investors to reduce bets that the Bank of England will increase interest rates from its record low. 

US$ Continues Momentum as Stocks Fall, Italian Worries Grow

The U.S. dollar continued its momentum from yesterday’s trading session overnight as global equities faltered, boosting demand for the greenback as a safe-haven.  Indeed, the Stoxx Europe 600 Index of shares tumbled nearly 1.5% and the MSCI Asia Pacific Index fell as much as 2.0%, adding to yesterday’s slide.  The greenback gained the most against the New Zealand dollar as investors fled assets perceived to be more linked to economic growth.  However, the dollar fell to the lowest level against the Japanese yen in two-months.  The U.S. economic docket showed that the U.S. trade deficit widened in May to the highest level in almost three years.  The gap grew 15% to $50.2 billion, exceeding forecasts of $44.1 billion.  Meanwhile, President Barack Obama yesterday pushed back against Republican efforts to focus on a scaled-down deficit deal, arguing for a broader package of spending cuts and tax increases to put the U.S. on a sounder long-term fiscal footing.  The deadlock over a way to reduce the deficit before the government exhausts its borrowing authority is preventing the dollar from extending its advance against some of its counterparts. 

The Euro dropped to the lowest level in four months against the dollar overnight, before paring some of its losses, after a meeting of European Union finance ministers failed to defuse the region’s escalating debt crisis.  The common currency also fell to a to a 4-month low against the Japanese yen and a record low versus the Swiss franc as yields on Italian and Spanish debt rose for a second day.  ECB Executive Board member Lorenzo Bini Smaghi said yesterday in a speech that the link between sovereign risk and bank risk is potentially “explosive.” In Italy that link poses an “element of fragility” and “needs to be monitored,” he said.  As the European debt crisis and contagion fears continue to dominate headlines, expect the Euro to continue to remain under pressure this week.

The Japanese yen rallied against all of its major counterparts, touching a four-month high against the Euro.  The yen also reached its strongest level versus the U.S. dollar since the Group of Seven nations jointly intervened to weaken the currency following the March 11 earthquake as stocks slumped, spurring demand for haven assets.  The yen tends to strengthen during economic and financial turmoil because Japan’s trade surplus makes it less reliant on foreign capital. 

The British pound fell against the U.S. dollar as reports showed inflation unexpectedly slowed and retail sales slide in June, fueling speculation U.K. central bank rates will stay at a record low.  Consumer prices rose 4.2% from a year earlier, the Office for National Statistics said today in London.  Economists had expected the gauge to stay at 4.5% according to a Bloomberg survey.  A separate report showed sales fell 0.6% from a year earlier, following a 2.1% decline in May, according to the British Retail Consortium.  The British currency has been under pressure this year amid speculation that slowing economic growth will limit the Bank of England’s ability to raise rates, despite inflationary pressures more than double the central bank’s 2.0% limit.  

US$ Rallies Versus Euro on Italian Debt Contagion Concerns

The U.S. dollar rallied against all of its major counterparts, save the Japanese yen, as the greenback was bolstered by heavy safe-haven flows.  The U.S. dollar climbed to the highest level since late May against the Euro has rising Italian bond yields stoked concern Europe’s debt crisis is deepening.  The Australian dollar tumbled on speculation China, its largest trading partner, will increase efforts to tame inflation even as growth cools.  Indeed, Chinese consumer prices increased more than forecast, making it more likely that officials will continue their monetary tightening.  The Norwegian Krone also fell as crude oil prices slumped and after data showed Norway’s underlying inflation rate was 0.7% in June, compared with economist estimates for a 1.0% rate.   With no major economic data slated for release today, expect the U.S. dollar to remain in favorable ranges as U.S. stock futures show American indexes will open today’s trading nearly 1.0% lower.  Tomorrow afternoon, the U.S. Federal Reserve will release their minutes from their June meeting and traders will search for signals as to clues to when the central bank may raise interest rates, likely early next year.  On Wednesday, import and export prices are slated for release, followed by the producer price index, retail sales and weekly jobless claims on Thursday.  The Consumer price index, industrial production and consumer sentiment will round out the week on Friday.

The Euro tumbled to the weakest level in six weeks versus the U.S. dollar and a fresh all-time low against the Swiss franc as investors shed riskier assets in favor of safe-havens.  Indeed, some European indexes fell as much as 2.0% overnight as fears over debt contagion to Italy sparked an equity sell-off.  The yield of Italy’s 10-year bond rose as much as 19 basis points today to 5.47%, driving the premium over German bunds to a euro-lifetime record of 268 points.  The difference in yield, or spread, between Spanish and German 10-year securities also reached the highest in the euro area, widening to 308 basis points.  Austria’s Finance Minister Maria Fekter said Italy will be discussed at today’s monthly gathering of euro-area finance ministers.  Italy is a much larger economy than Greece or Portugal, so if we do see contagion to Italy, the ECB, EU and the IMF will have to come up with a much more expansive plan to deal with the crisis. 

The Japanese yen gained across as stocks from Europe to Asia declined.  However, the yen continues to maintain familiar ranges against the U.S. dollar as both currencies track global risk appetite.  Indeed, the USD/JPY is largely unchanged from early June. 

The British pound fell against the dollar on general risk aversion, but also as a business lobby group said U.K.’s recovery is fragile and vulnerable to global slowdown.  The U.K.’s gross domestic product probably grew a meager 0.3% in the three months through June, the British Chamber of Commerce’s quarterly survey of companies showed today.  Traders will now shift their focus to the release of retail sales tomorrow morning.  The British Retail Consortium is expected to say that sales fell 1.4% in June, adding to concern the economic recovery will stall.

US$ Better Ahead of ECB Press Conference

The U.S. dollar rose against nearly all of its rivals overnight despite a slight rise in global risk appetite.  The greenback pushed to a one-week high over the Euro even has the European Central Bank lifted its key interest rate in a widely expected move.  The U.S. dollar gained the most versus the Swiss franc after a report showed that Swiss inflation accelerated less than expected in June.  However, the Aussie dollar rallied following a report that showed employers added more jobs in June than economists forecast, easing concern that the nation’s economy is losing momentum.  Meanwhile, the U.S. economic docket showed that private companies added 157K workers to their payrolls in June, according to figures from ADP Employer Services.  The print beat expectations of an advance of 70K jobs.  The reading could foreshadow a better than expected Non-farm payrolls and unemployment rate numbers tomorrow morning. In addition, U.S. initial jobless claims fell for the first time in three weeks.  Claims fell by 14K to 418K, modestly beating expectations. 

The Euro slipped to a one-week low against the U.S. dollar as European debt concerns outweighed the European Central Bank’s interest rate increase.  In an expected move, the central bank raised interest rates 25 basis points to 1.50%.  Later this morning, ECB President Jean-Claude Trichet will conduct a press release in Frankfurt.  Market participants will look for signs from the central bank head as to future interest rate hikes.  If Trichet does not indicate further rate hikes by saying risks to inflation and growth have moved to the downside, the Euro could see further selling.  In last month’s press conference, Trichet damped investor expectations for further moves by reiterating that inflation will fall back below the ECB’s 2.0% limit next year. 

The Japanese yen held a relatively tight range against the U.S. dollar overnight.  However, the yen has fallen to a 5-week low against the greenback in early trading following the ADP employment report that showed private employment in the U.S. increased more than expected in June.  The yen is now trading at is lowest rate versus the U.S. dollar since June 1. 

The British pound stayed lower against all of its 16 major counterparts after the Bank of England left its benchmark interest rate at a record low and maintained its bond purchase program to help boost the U.K. economic recovery.  Meanwhile, UK manufacturing and industrial production both rebounded from dreadful showings in April, which was blamed on a host of reasons ranging from the royal wedding to Japan’s earthquake and tsunami. Industrial production in May expanded by 0.9% rebounding from its 1.7% drop in April but missed expectations of 1.1%.  On the manufacturing front, the numbers were much firmer coming in at 2.8% year-on-year beating consensus forecasts of 2.1%.

US$ Opens the Weak in Similar Ranges From Friday

The U.S. dollar rallied against many of its most-traded rivals overnight, erasing losses from Monday’s trading session.  Indeed, the U.S. dollar opened this morning’s trading in similar ranges from Friday’s close against the Euro and other higher-yielding currencies.  The greenback also pushed higher versus the Australian dollar after the nation’s central bank left borrowing costs unchanged.  The rate was left at 4.75% for a seventh straight meeting as signs of lower growth from Europe to China dimmed growth prospects for the island nation.  Meanwhile, the U.S. economic docket is expected to show that factory orders in the month of May jumped 1.0%, up from a negative 1.2% reading the month prior.  Tomorrow, Mortgage applications and ISM Non-manufacturing numbers will hit the wire, followed by weekly jobless claims on Thursday.  Non-Farm Payrolls, U.S. unemployment and wholesale inventories will round the week on Friday morning.

The Euro fell versus the U.S. dollar overnight but remains near a three-week high on prospects the European Central Bank will continue to lead its U.S. counterpart in monetary tightening.  Indeed, on July 7^th, the ECB is widely expected to increase its benchmark rate to 1.5% from 1.25%, according to all 54 economists surveyed by Bloomberg.  ECB President Trichet last week reiterated that policy makers are in a state of “strong vigilance,” a phrase he has used before tightening monetary policy.  There was no major economic data released today in the Euro-zone.

The Japanese yen fell modestly against the U.S. dollar after Japan’s Prime Minister Noda warned the government may run out of money if it does not get parliamentary approval to issue bonds.  Indeed, he said the government may run out of money as early as October.  Nevertheless, the USD/JPY has maintained its tight range from over the past month. 

The British pound stiffened modestly against the U.S. dollar and rallied against the Euro after a report showed a measure of U.K. service industries exceeded economists’ forecasts in June, alleviating concern about the recovery.  The gauge of U.K. service growth based on a survey of companies rose to 53.9 from 53.8 in May, Markit Economics Ltd and Chartered Institute of Purchasing and Supply said today in a report.  The median forecast was for a decline to 53.5.  Nevertheless, the Bank of England is expected to keep its main rate unchanged at 0.5% later this week when it announces its monetary-policy decision. 

US$ Headed for a Weekly Loss

The U.S. dollar gained modestly versus most of its major counterparts overnight.  However, the U.S. dollar Index is set for its biggest weekly drop since January.  The Swiss franc fell against all of its rivals, including the U.S. dollar, as traders have started to unwind their European safe-haven bets.  The franc also came under pressure after the Procure.ch Purchasing Managers’ Index fell to 53.4 in June from 59.2 in May.  The manufacturing print was the lowest since September 2009, suggesting the Swiss economy may struggle to maintain its expansion pace.  Meanwhile, the U.S. economic docket is expected to show that the Institute of Supply Management’s manufacturing index fell to 52 last month, the lowest level since August 2009, from 53.5 in May.  Figures greater than 50 signal expansion.  In addition, the U. of Michigan Consumer confidence survey is expected to rise to 72.0 from 71.8 prior, while construction spending is forecast to slow to 0.1% in May from 0.4% in April.  Expect the data to drive the direction of the greenback in early trading, however the currency may settle into tight ranges in the early afternoon as market liquidity thins ahead of the Fourth of July weekend.

The Euro traded slightly lower against the U.S. dollar overnight, but the common currency is set for its first weekly gain of the month of June as the Greek Parliament approved an austerity plan needed to keep aid flowing.  The Euro has also been supported this week as traders increased bets the European Central Bank will tighten further.  Indeed, investors now expect the central bank to increase interest rates by 76 basis points over the next year, up from 16 on June 22, according to a Credit Suisse Group AG index.  ECB President Trichet reiterated yesterday that policy makers are in a state of “strong vigilance” against inflation, cementing chances of a rate increase at their meeting on July 7^th. 

The Japanese yen closed the month of June largely unchanged as the JPY/USD pair struggled to find a definitive direction.  Japanese companies forecast increased hiring and investment as demand picks up this year after the March earthquake that triggered the biggest plunge in the Tankan survey of sentiment since 2009.  Large companies said they will boost capital spending 4.2% in fiscal 2011, exceeding analysts forecasts for a 2.4% increase. 

The British pound fell against the U.S. dollar and pushed to a fresh 15-month low against the Euro as a report showed U.K. manufacturing growth unexpectedly slowed in June, adding evidence that the economic recovery is faltering.  A gauge of factory output dropped to 51.3 in June from 52.1 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said today.  The print is the lowest level since September 2009 and worse than the 52.3 reading predicted by economists.  Poor economic data and an increasingly dovish central bank will likely continue to weigh on the pound over the coming months.