Dollar Weakens As Tapering Less Likely

USD

The dollar fell on Tuesday as a result of various factors, including fading hopes the Fed might taper stimulus fading after recent commentary from St Louis's Bullard argued for continued QE until prices started rising. The yen also rose against the dollar after the BOJ stood pat on more stimuli, and talked up the economy when a more aggressive line had been expected. On the data front, Small Business Optimism rose to 94.4 from 92.1 when it had been expected to remain put. JOLTS job openings fell below expectations showing labor market contraction to 3757 from 3875 previously, and the same expected. Wholesale Inventories came out in line with expectations at 0.2%, whilst Wholesale Sales in April rose by 0.5% from -1.4% previously when it had been forecast to recover to -0.1%.


EUR

The euro traded mixed on Tuesday as a result of a general atmosphere of risk aversion. News focused on the start of a case in Germany's constitutional court to assess the legality of the ECB's Outright Monetary Transactions – or OMT – scheme. The scheme gives the ECB the power to buy limitless quantities of eurozone sovereign bonds in secondary markets a crisis arise. After its launch last year Spanish and Italian bond yields fell overnight, there was no need to actually use it. However, in Germany over 35,000 people have opposed it and brought its legality into question. The chance that the court will rule against German involvement is seen as small, as in the words of the German Finmin it doesn't “violate our mandate” - of maintaining price stability.


GBP


The pound rose overall on Tuesday after Industrial and Manufacturing Production data came out better-than-expected, with the former showing a 0.1% rise m/m and a -0.6% y/y (up from -1.4% in 2012), and the manufacturing falling by -0.2% m/m and -0.5% y/y – with the annualized figure showing a deeper than forecast fall although still an improvement from before. The figures were generally encouraging but not all data was, with the NIERSR GDP Estimate showing growth rising by a lower 0.6% compared to the 0.8% previously – which itself was revised up 1.0%. Wholesale Inventories fell to 0.2% in line with expectations, and were revised down to 0.3% previously. The BoE's conservative monetary approach also continues to support the pound as does a recent run of positive data.


JPY

The yen recovered on Tuesday after the BOJ rate meeting gave little indication of an increase in the program of monetary easing in the near future. In fact, the central bank saw the economy “picking up” in the last quarter and there therefore little need for more stimulus. However, BoJ governor Kuroda warned of possible “headwinds” from the U.S and Europe – although this might be a possible source of strength for the yen in its traditional role as safe-haven. On the data front, the BSI Large Industry – a survey of Japan's leading Business leaders – showed a rise to 5.9 from 1 q/q for Q2 and the BSI large Manufacturing equally showed a rise to 5.0 from -4.6. Other data showed Japan Money Stock M2 + CD rose by 3.4% in May from 3.2%; Japan Money Stock M3 rose by 2.8% from 2.6% and Japan Manpower Survey (Q3) rose by 15.0 from 11.0 previously.