Daily Report: Dollar Declines Amid Uncertainty Over Fed's Move

The U.S. Dollar declined against the majority of its trading peers as investors shied away from the currency amid uncertainty over whether the Federal Reserve will cut back on monthly asset purchases. Speculation that the central bank will reduce stimulus in the near future followed better than expected Employment data released on Friday, which showed that the jobs sector added 175,000 payrolls. Gold prices went down after the Bank of Japan announced that it would not expand stimulus for now. This prompted market investors to shy away from the precious metal as well as the U.S. Dollar. Normally, Gold and the greenback tend to move inversely from each other, however, the announcement caused the two to buck the trend. Gold Futures for August delivery slipped 0.67 percent and settled at $1,353.35 a troy ounce on the Comex Division of the New York Mercantile Exchange.

The Euro traded at a three month high against the U.S. Dollar despite the drop in Euro-zone equities which followed a decline of Japan’s Nikkei. The 17-nation currency advanced versus most of the majors after one European Central Bank official spoke in favor of the bank’s policies for combating the debt crisis. The officials who appeared before the German Constitutional Court yesterday indicated that the OMT program has worked, although the calm now felt throughout the Euro-zone could have caused different governments to “ease on fiscal consolidation.” The British Pound rebounded and erased losses versus the greenback on speculation the Federal Reserve may reduce stimulus given the improvement in the Employment sector. The Sterling was also bolstered by positive economic data which showed that Manufacturing Production dropped less than anticipated and Industrial Production climbed for the third month in a row. The Swiss Franc rose against the U.S. Dollar as speculators continued to focus on whether the U.S. central bank will unwind its monetary easing measures very soon. The Franc also benefitted from news revealing that the country’s Secretariat for Economics raised its growth predictions from 1.3 to 1.4 percent for 2013.

In Japan, the central bank announced it has no intentions of expanding stimulus at this time, a factor that prompted the Yen to rally versus all of its counterparts. The Bank of Japan’s Governor, Haruhiko Kuroda, stated that all policy makers agreed not to extend the maturity date for loans made to other banks. The decision made by the Bank of Japan has said to have caused a major deleveraging which has pushed equities towards the downside. According to analysts, investors weren’t happy with the central bank’s move and they believe that if the Yen continues to rally while shares and bonds fall, the Bank of Japan may intervene.

Lastly in the South Pacific, Australia’s Dollar traded at the lowest level in close to three years versus its U.S. peer following lackluster metrics which confirmed that Home Loan Approvals rose at the slowest rate in three months. The Aussie and the New Zealand Dollar weakened amid speculation the Federal Reserve may scale back on its monthly asset purchases.

EUR/USD- Euro Benefits From Dollar Drop
The Euro traded at three-month highs against the greenback as investors shied away from the currency on speculation the Federal Reserve may reduce stimulus following the better than anticipated Employment figures issued on Friday. The shared currency was also bolstered by an increase in position liquidations by investors who trade other risk assets; and it remained strong despite the decline in Euro-zone equities. Today, market participants will focus on Inflation data.
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GBP/USD- Positive Data Supports Sterling
The British Pound rebounded against the U.S. Dollar after the Office For National Statistics indicated that Manufacturing Production declined by 0.2 percent in April, rather than the anticipated 0.3 percent. Therefore, on an annual basis, Production dipped 0.5 percent. Other releases showed that Industrial Production increased 0.1 percent in April after posting a 0.7 percent hike the previous month.
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AUD/USD- Home Loans Impact Aussie
Australia’s Dollar fell against the greenback and traded at the lowest rate in close to three years as data showed that Home Loan Approvals only advanced 0.8 percent in April. This has been the smallest hike since January, and has prompted speculation the Reserve Bank may reduce the costs of borrowing money. According to analysts, the announcement weighed on the currency as Housing is considered the area which will make up for losses in mining. The South Pacific currency slipped for a third day on the possibility the Federal Reserve may reduce the monthly asset purchases, which in turn may reduce Australia’s interest-rate advantage.
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USD/JPY- BOJ Brings On Uncertainty
The U.S. Dollar declined against the Yen after the Bank of Japan refrained from making changes in monetary policy. This caused the Yen to soar the most in three years versus the greenback as investors believe the central bank may expand stimulus later on. The decision fueled uncertainty in the foreign currency exchange and it raised expectations the Federal Reserve may follow suit. The Japanese currency extended its advance after Treasuries went up even as demand went down to close to three-year lows.
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Today’s Outlook
Today’s economic calendar shows that the Bank of Japan will release its Monthly Report. The U.K. will provide metrics on the Average Earnings Index, Claimant Count Change and Unemployment. The Euro region will announce Industrial Production. New Zealand will issue the Interest Rate Decision and the RBNZ Rate Statement. Australia will publish the Unemployment Rate and Employment Changes. Lastly, the U.S. will release the Federal Budget Balance as well as data on MBA Mortgage Applications.