Will The US Dollar Slump Last All Summer Or End On A Surprise?
United States Dollar: The US dollar slumped to an eight-week low versus a basket of currencies Monday as a gauge of US business activity fell more than forecast this month, adding to evidence recovery in the world’s largest economy remains uneven. Binary option indicators point to more weakening.
The Institute for Supply Management’s Chicago business barometer fell to 62.6 from 65.5 in May as new orders fell in June. Most economists expected a reading above 64. Readings above 50 signal expansion from previous month.
A separate report by the National Association of Realtors Monday showed the index of pending home sales jumped 6.1 percent in May to an eight-month high of 103.9. Bigger inventory, low mortgage rates and stronger job creation will fuel the housing market, the NAR report observed. A reading of 100 equals 2001’s average deal activity level.
The market seems to be torn between first quarter’s surprisingly weak economic data and the apparent rebound in the second quarter, said currency strategists in New York Monday.
The ICE-dollar index, a measure of the dollar’s strength versus a basket of six rivals, fell to 79.784 from 80.041 late Friday.
The WSJ Dollar Index, a rival gauge that pits the greenback against a slightly wider basket, slipped to 72.60 from 72.74.
EURO: The Euro edged higher versus the greenback Monday as May inflation in the currency zone met expectations, triggering speculation the European Central Bank will not add further stimulus when it meets Thursday.
The single-currency rose to $1.3695 in North America from $1.3630 late Friday. The 18-member currency shed 0.6 percent against the dollar for the quarter.
The annual inflation rate in the euro area was unchanged at 0.5 percent in June, the European Union’s statistics agency Eurostat said Monday. The June reading marked the ninth straight month of sub-1 percent inflation and was well below the ECB’s 2 percent target.
Separate report from the ECB showed bank lending to households in the currency area fell by 43 billion euros in May, while business lending shrank by EUR 8 billion. The ECB on June 5 cut deposit rates to below zero and decided to charge lenders for the first time for parking excess reserves with the central bank in an attempt to get banks to lend more to credit-starved customers.
Japanese Yen: The yen strengthened versus the greenback Monday as mix economic data from the US failed to allay investor fears recovery in the world’s largest economy is faltering.
The Japanese currency rose to 101.33 per US dollar from 101.42 Friday, tallying its quarterly gain at 1.9 percent. It fell to 101.47 in recent Asian trade after the Bank of Japan’s Tankan survey showed companies showed their investment plans more than forecast even as a sales tax increase dented investor sentiments.
Large Japanese companies increased their capital spending plans by 7.4 percent this fiscal year through March, the BoJ report showed. That was a more than 0.1 percent gain from a survey conducted three months earlier and well above the median 6 percent increase forecast by economists.
However, a gauge of sentiment among large manufacturers fell to 12 from 17 in March. Investors would not worry much about Tankan because Japan is likely to absorb the effects of sales-tax increase, said currency strategists in Tokyo.
British Pound: Sterling hit its highest level in nearly six years against the US dollar Monday on speculation the Bank of England will raise interest rates ahead of the Federal Reserve as UK growth outpaced the US recovery.
The pound finished Monday’s session at $1.7108 versus $1.7037 late Friday. It hit $1.7144 in intraday trade, the highest since October 2008.
Sterling’s strength, however, was attributed to weakness in US data by currency strategists Monday. Markets became cautious following last week’s disappointing US growth number and investors moved to the sideline ahead of Thursday’s US nonfarm payroll report, they argued.
The pound edged lower in early trade after data released by the Bank of England showed mortgage approvals fell to the lowest level in 11 months in May, indicating tighter rules are hindering activity. Rising house prices and past approvals pushed total mortgage lending to the highest level since 2008.
The central bank’s Final Policy Committee announced a cap on home loans last week on worries the housing market is overheating. The FPC also imposed tougher checks on approvals to ensure borrowers can repay when rates rise in future.
Canadian Dollar: The Canadian dollar finished little changed against its broadly weaker North American counterpart Monday after data showed the nation’s growth in April trailed forecasts.
The loonie, as the Canadian dollar is popularly known, ended Monday’s session at C$1.0671 per US dollar in Toronto.
Canada’s economy grew at a 2.1 percent annual pace in April, matching a 2.1 percent gain in the previous month, according to a report released by Statistics Canada in Ottawa Monday. Most economists expected a gain of 2.3 percent.
Monday’s weaker-than-expected GDP reading supported comments from the Bank of Canada that a recent spike in inflation was fleeting and doesn’t signal a heating-up of the economy. The loonie fell versus 12 of its 16 major rivals Monday as traders cut wagers the central bank will signal a need for higher interest rates at its next policy meeting.
Australian Dollar: The Australian dollar firmed advanced against the greenback ahead of Tuesday’s interest rate decision on expectations the Reserve Bank of Australia will keep rates on hold.
The Aussie, as the Australian dollar is popularly known, climbed to 94.32 US cents from late Friday’s level of 94.25 US cents.
The local currency exchanged hands at 94.58 US cents in recent trade after official data from China showed manufacturing expanded at the fastest pace this year in June. Data released by the China Federation of Logistics and Purchasing and national Bureau of Statistics showed the manufacturing purchasing managers’ index (PMI) rose to 51 from 50.8 in May. Readings above 50 signal expansion from the previous month.
The Aussie recorded its longest run of monthly gains in four years and added 1.67 percent for the quarter against the greenback as the final iteration of Markit and HSBC PMI for June rose to 50.7 from 49.4 in May. China is Australia’s biggest trade partner.
The Aussie dollar found support after the RBA left the overnight cash rate unchanged at 2.5 percent, as widely expected, increasing the allure of higher-yielding Aussie denominated assets.
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