The U.S. dollar came off one-months lows against the euro
and the British pound Friday, but the greenback was still in line to
post a loss of more than 1% for the week ahead of key monetary-policy
and economic news.
This comes ahead of an action-packed week with the release
of a monetary-policy statement from the Federal Open Market Committee
and the U.S. government’s key jobs report for July. The U.S. currency
has dropped before reports next week predicted to show economic
expansion in the second quarter and jobs growth in July slowed. Fed
Chairman Ben S. Bernanke told Congress last week that any reduction in
stimulus would depend on the economy’s performance.
A July 31 report will probably show U.S. annualized gross
domestic product grew 1% in the April-to-June period, slowing from 1.8%
in the previous three months. Employers added 184,000 jobs this month,
after 195,000 additional positions were created in June, a separate
survey forecast before the Aug. 2 data release.
The dollar slipped against Europe’s shared currency even after orders for U.S. durable goods rose more than forecast in June.
The Commerce Department has informed that orders for US
long-lasting goods have increased 4.2% MoM during June, crushing
expectations at +0.5%, albeit down from 5.2% (revised) in May.
According to the Labour Department, the Americans that
filed in their first initial claims for regular state
unemployment-insurance benefits rose by 7K last week to a seasonally
adjusted 343K in the week ended July 19, above expectations at 340K and
coming from 336K (revised) in the previous print.
The Reuters/Michigan Consumer Sentiment Index for July was
reported at 85.1, compared with a figure of 84.1 previously. Late next
week, investors will receive the U.S. government’s widely watched jobs
report for July.
Analysts said the dollar was still likely to strengthen in
the coming months against currencies such as the euro, sterling and the
yen, as the Fed is expected to be the first major central bank to make
its policy less accommodative.
The dollar has risen 4.5% this year. The yen is the worst performer, having dropped 10%
EURO
The common currency rose toward the highest level in five
weeks versus the dollar after an industry report showed German business
confidence jumped for a third month.
German business confidence rose for a third month in July.
The Ifo institute’s business climate index, based on a survey of 7,000
executives, rose to 106.2 in July from 105.9 in June. Economists
predicted an increase to 106.1.
Europe’s shared currency strengthened as another purchasing
managers’ index indicated French output contracted at a slower pace.
A manufacturing index based on a survey of purchasing
managers in the euro area rose to 50.1 from 48.8 in June. Economists
predicted a reading of 49.1.
The European Commission has announced on Friday that the
next bailout payment for Greece, worth 2.5 billion euros and blocked on
Wednesday, would be released on Monday.
On July 24 the European Commission decided to suspend the
payment, as Greece had not fulfilled all the requirements necessary to
obtain it. But Antonis Samaras's government managed to close all the
pending issues yesterday, including an agreement on the “mobility
scheme,” involving massive layoffs in the public sector.
The entire bailout tranche amounts to 5.8 billion euros.
Apart from the 2.5 billion euro payment from the EFSF, Greece will
receive 1.8 billion euros from the International Monetary Fund, while
1.5 billion comes from the profits from Greek bonds bought by the ECB.
Nevertheless, the Troika asked Greece to implement further
measures such as selling a big portion of shares in the country's
third-largest bank Eurobank and maintaining the emergency property tax
for a longer time.
No changes are expected from the this week’s ECB meeting’s
outcome at 11:45 GMT, Thursday. ECB Monetary policy statement and press
conference will be the main focus.
POUND
Sterling challenged highs after data showing U.K. economic
growth matched analysts’ estimates damped speculation the Bank of
England is moving closer to ending its accommodative policy. British
gross domestic product grew 0.6% in the second quarter, the data showed.
Over the coming months the direction of the USD will
remains key in determining the value of cable. However, sterling
fundamentals have entered an interesting period and we expect them to
offer the pound decent support. The combination of a new BoE governor
and early signs of economic recovery mean that UK fundamentals have
entered into a fresh phase.
This week the focus will be at BoE meeting results on
Thursday with Asset Purchase Facility is expected to remain at £375K,
while key lending rate is set to left unchange at 0.5%.
YEN
The yen rose last week.
Higher than expected consumer prices in Japan for the month
of July, with the Core CPI contracting 0.2% vs. -0.4% previous, are
giving extra credit to the PM S.Abe in its battle to eradicate the
entrenched deflation. That should help limit the downside for USD/JPY –
although the outlook for monetary policy in the US is still key and the
bigger driver at present.
The yen gained against its major peers as Asian stocks slumped, boosting demand for the haven currency.
The dollar lost some ground against the Japanese yen as
Abe’s advisor Hamada said sales tax rise should be put on hold until
Japan posts two more quarters of annualised 4% growth.
Benefits from Abenomics may be eroded if Japan raises sales tax as scheduled.
Analysts said Japanese Prime Minister Shinzo Abe's decisive
upper house election win last weekend would pave the way for pro-growth
fiscal policies and for further Bank of Japan monetary easing, which
would weaken the yen.
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