The US dollar continues to hold on to its gains at 80.70 after the Beige Book released last evening by the US Federal Reserve said that economy was recovering steadily. The US Dollar Index (DX) gained around 0.1 percent yesterday on the back of favorable economic data from the country. Further, rise in risk aversion in market sentiments in early part of the trade led to increase in demand for the low yielding currency. The currency touched an intra-day high of 80.72. US ADP Non-Farm Employment Change declined by 36,000 to 179,000 in May as against a rise of 215,000 in April. Trade Balance at deficit of $47.2 billion in April from earlier deficit of $44.2 billion in March. Revised Nonfarm Productivity declined by 3.2 percent in Q1 of 2014 with respect to earlier fall of 1.7 percent in Q4 of 2013. The Institute for Supply Management (ISM) Non-Manufacturing PMI increased by 1.1 points to 56.3-level in May from 55.2-mark in April.
The strong dollar weighed on the euro as traders sit and wait for the final decision from the ECB due later today. Traders are banking on the ECB to cut interest rates to 0.1 -0.15% but are unsure of exactly what Mr. Draghi will do and how large the overall stimulus package will be. Traders are banking on a sizable bump from the central bank after data this week continued to show a weak recovery. The euro traded on a negative note around 0.2 percent yesterday on the back of unfavorable economic data from the region. Further, strength in the DX exerted downside pressure in the currency. The euro is exchanging this morning at 1.3598.
Spanish Services Purchasing Managers’ Index (PMI) declined by 0.8 points to 55.7-mark in May as against a rise of 56.5-level in April. Italian Services PMI gained by 0.5 points to 51.6-level in last month from 51.1-mark in April. Euro Zone Final Services PMI slipped marginally by 0.3 points to 53.2-mark in May with respect to 53.5-level a month ago. Producer Price Index (PPI) fell by 0.1 percent in April when compared to decline of 0.2 percent in prior month. Revised Gross Domestic Product (GDP) remained unchanged at 0.2 percent for Q1 of 2014.
Bank of Japan’s Takehiro Sato said the disinflationary trend now appearing in the euro area may be prolonged, mainly in peripheral countries. “The European Central Bank has already revealed its policy stance that it will not hesitate to make use of unconventional measures to address the risk of prolonged disinflation,” Sato said in a speech to business leaders in Oita, southern Japan. “I therefore am keeping a watchful eye on its future conduct of monetary policy,” he said. The Bank of Japan is expected to add additional stimulus next week to help offset the effects of the sales tax increase which is weighing more heavily on consumers and retail sales than expected. The USD/JPY is trading at 102.56 and against the euro the yen is trading at 139.47. The AUD and the NZD are both in the green on hopes of stimulus from the ECB which is supporting the commodity currencies which are trading at 0.9282 and 0.8434 respectively.