At the forex beginning of last week, the euro rose against the dollar, despite the significant decline recorded earlier in the month. The Australian dollar increased insignificantly against other major currencies, restoring most of the positions lost earlier. Similarly, the pound also appreciated against the dollar. This week’s economic data might shift the dynamics again.
The euro rose against the dollar from 1.3065 to 1.3160, helped by the data from Eurozone. According to the report from the Centre for European Economic Research, the Economic Sentiment in the Eurozone that measures the difference between optimistic and pessimistic investors improved to 32.8 for July from the previous value of 30.6. Markets had expected a more modest increase to 31.8. The euro’s appreciation against the dollar was also affected by U.S. data, which was worse than expected.
The Australian dollar rose sharply against the U.S. dollar due to the Reserve Bank of Australia (RBA) minutes publication. The RBA in July left interest rates at a record low level, while noting that low inflation leaves the possibility of further rate cuts if the economy will require additional support. The Aussie’s appreciation was also affected by the economic data showing that China’s economic slowdown in the 2nd quarter was not as bad as some experts had feared. According to these data, China’s GDP in the 2nd quarter grew by 7.5% after rising by 7.7% in the 1st quarter. The growth for the AUD/USD was 150 points (from 0.91 to 0.9250).
The British pound rose against the dollar after strong labour market data and the minutes of the last meeting of the Bank of England last Wednesday. Also the pair was influenced by Fed chairman Ben Bernanke’s comments, which brought the sterling back to its former position. Fed Chairman Bernanke said that the Fed intends to keep highly accommodative policy for the foreseeable future, and the programme of bond purchases is flexible and will respond to future reports. According to data from the British National Statistics Agency, the number of unemployed Britons in June fell by 21.2 thousand versus 16.2 thousand a month earlier. It was the strongest decline since June 2010. The minutes presented on Wednesday showed that all nine members of the monetary committee of the Bank of England in July voted to keep the existing soft policy unchanged.
There was a massive upward movement of the U.S. dollar against the Japanese yen due to events in Japan. Recent polls have shown that Prime Minister Abe’s political party and coalition party are likely to take control of both chambers of Parliament. This scenario would imply that Abe would have even more freedom to carry out his plans of fiscal stimulus, known as Abenomics. Japanese economy growth expectations increased, and hence USD/JPY jumped from 99.58 to 100.65.
The main indicators coming up next week for the euro are the Markit Manufacturing PMI index, which measures the health of the European manufacturing sector, and the data measuring the business climate and economic expectations in Germany. The British Gross Domestic Product (GDP) for the second quarter of the year will be released on Thursday, which is a measure of the general economic activity in Britain, and strong data might push the sterling upwards. U.S. data to be published on Wednesday regarding July’s Manufacturing PMI and durable goods orders on Thursday might add some more volatility to the US dollar. Also on Wednesday a decision of the Reserve Bank of New Zealand on interest rate is expected, and a change in the current interest rate would be against current expectations.
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