Daily Report: Dollar Strengthened On Improved Credit Rating for US

The U.S. Dollar rallied against the majority of its counterparts after the Standard & Poor’s increased the U.S.’s AA+ credit rating from negative to stable a year after stripping it from its highest ranking. The S & P cited a drop in fiscal risks as the main reason. The news fueled further speculation that the Federal Reserve may begin cutting back on monthly asset purchases. However, Moody’s Investment Services and Fitch Ratings still consider that the U.S. merits the AAA ranking, though with a negative outlook as they indicated that they won’t make any changes until lawmakers deal with the enormous debt which is liable to increase over the coming years. Meanwhile, Gold Prices increased slightly as speculators considered the precious metal a good investment. Despite the stellar Jobs reports issued on Friday and the announcement by the S&P which bolstered the greenback’s value, Gold Futures for August delivery climbed 0.6 percent.

The Euro fluctuated steadily for most part of the day before declining against the U.S. Dollar as investors traded with caution in anticipation of Germany’s Federal Constitution Court hearing scheduled to start tomorrow. At this time, the court will address matters relating to the European Stability Mechanism and the central bank’s Monetary Transaction Program. The shared currency dropped as demand for the U.S. Dollar increased subsequent to an announcement by the S& P ratings agency stating that it would upgrade the U.S. credit rating from negative to stable. The agency affirmed the country’s AA+/A-1 ranking. The British Pound also traded steady throughout the sessions, especially as better than expected Employment data issued on Friday out of the U.S. raised the appeal of the greenback. Labor Department metrics showed that Employers added 175,000 payrolls in May. The Swiss Franc fell versus the U.S. Dollar even as figures confirmed that Swiss Retail Sales climbed by 3.3 percent in April, surpassing previous predictions for a 2.4 percent hike over last year.

The Yen slipped against the U.S. Dollar as equities gained on news that the country’s economy expanded 1.0 percent in the initial three months of the year, rather than the 0.9 percent previously posted. The Yen dipped despite other positive data which indicated that Current Account sustained a bigger surplus in April; economists suggested that the weaker Yen attracted overseas investments. Analysts have explained that the upward revision of the Gross Domestic Product was a result of increased capital spending.

Lastly, the Australian Dollar traded mixed with tendencies to the downside as weekend reports out of China continued to weigh on the South Pacific currency. Government metrics pointed to the fact that the Chinese economy is losing momentum, especially as Imports dropped, Industrial Output climbed less than predicted and Exports advanced at the slowest rate in close to one year. New Zealand’s Dollar traded close to 11-month lows versus its U.S. counterpart as lackluster Chinese data reduced risk appetite. Official figures indicated that Consumer Price Inflation went down to an annualized 2.1 percent in May.

EUR/USD- Investors Cautious Ahead OF Hearing
Traders remained cautious while awaiting the outcome of Germany’s Federal Constitution Court hearing scheduled for two days starting tomorrow. The Euro dipped against the greenback after the Standard & Poor’s raised the outlook for the U.S. economy from negative to stable. In the meantime on the data front, France reported that its Industrial Output increased 2.2 percent in April, a factor that prompted the Euro to erase some of its previous losses. In addition, the Sentix Index which gauges Investor Confidence climbed to -11.6 in June after posting at -15.6 in May. Analysts believe this was due to the fact that the European Central Bank lowered the benchmark interest rate, and Italy showed signs of stabilization when it formed a new government.

GBP/USD- Sterling Low In Subdued Trading
The British Pound traded low against the greenback as volume remained low in anticipation of the German Federal Constitution Court Hearing set to start tomorrow. The Sterling was also weighed down by data issued at the end of last week in which the U.S. Labor Department revealed a better than forecast increase in payrolls. Analysts expect the Pound may rise once the Chancellor of the Exchequer, George Osborne delivers a speech indicating that the State is selling 39 percent of its stake in Lloyd’s.

AUD/USD- China’s Economy Affects Appetite
The Australian Dollar traded at 20-month lows versus the greenback following the release of disappointing Chinese economic reports. These showed that Consumer Price Inflation fell to an annualized 2.1 percent in May; and that Industrial Production increased by an annualized 9.2 percent in May, rather than the anticipated 9.4 percent. The weak data supported speculation that the world’s second biggest economy has slowed down, especially as its imports dropped, suggesting domestic demand has gone down.

XAU/USD- Gold Rises Despite Dollar Gains
Gold prices usually drop as the greenback increases in value; however, the precious metal advanced even as the U.S. Dollar rallied. This took place as speculators opted for the metal as an investment, and as Hedge Funds raised speculation that gold would appreciate to the highest price in seven weeks prior to the release of U.S. Non-Farm Payroll reports. Gold also went up after the Standard & Poor’s revised the outlook for the U.S. economy; Gold Futures for August delivery settled at $1,385.25 a troy ounce on the Comex Division of the New York Mercantile Exchange.

Today’s Outlook
Today’s economic calendar shows that Japan will report on Machine Tool Orders, CGPI, and Core Machinery Orders. The U.K. will issue data on Industrial and Manufacturing Production as well as on the NIESR GDP Estimate. Lastly, Australia will publish Westpac Consumer Confidence.