General Commentary
Last Week’s Currency Trading Review:
The EUR/USD bounced around all week to end at 1.3588 more or less where it started out the week. The US dollar gained momentum and then turned downward this week on steady The U.S. currency had the biggest weekly decline against the euro in two months as the Fed announced June 18 it will reduce monthly bond-buying while holding its interest-rate target at virtually zero. The Canadian dollar rallied to a five-month high after reports showed inflation and retail sales exceeded projections. The pound rose for a third week as traders had the most bullish futures wagers since 2007. A gauge of currencies volatility increased from a record low.
US data, but comments from Janet Yellen on Wednesday sent the US dollar on a downward spiral. The US Dollar fell to a fresh five year low against the British Pound and slipped to a three-week low against a basket of other currencies as investors ignored better than expected jobless claims data and instead continued to focus on the Federal Reserve’s policy meeting. Despite the release of data which showed that the number of Americans making claims for unemployment benefits declined last week. The currency was weakened broadly after the US Central Bank gave no indication of when interest rates could start to rise at the conclusion of its two-day meeting on Wednesday. In addition, the Fed’s forecast of where interest rates might reach in the long term fell from 4% to 3.75%. Investors were disappointed by the dovish stance of the bank.
The AUD/USD ended the week close to the 94 mark at 0.9383 staying strong after positive data and promises from the Chinese Premier that China will meet its growth expectations regardless of what the government needs to do. The currency soared after the FOMC meeting on Wednesday. The ‘Aussie’ fell from its highest level in two months against the US Dollar after peaking at 94.33, the highest level witnessed since April 10th.
The South Pacific currency had found strong support from Wednesday’s dovish comments made by Federal Reserve Chairman Janet Yellen.
Yellen widely disappointed the markets by saying that she intends to leave interest rates unchanged for a considerable time despite recent data showing a strong upsurge in the nation’s rate of inflation.
The comments caused investors to favor the higher yielding Aussie as the nation has a higher interest rate, is safe, and offers better returns for their cash.
The USD/JPY ended the week at the 102 range while traders closely monitor the conflict in Iran moving to safe havens while the geopolitical situation boils over. In Japan, Prime Minister Shinzo Abe might have avoided the nightmare he foresaw a year ago. But the market is reserving judgment on his growth strategy, questioning whether his deflation-fighting “Abenomics” policy will succeed in the long term after all.
Abe’s growth strategy is a plethora of deregulation steps and subsidies aimed at raising Japan’s economic growth potential, including a corporate tax cut, steps to help working women, the introduction of more foreign workers and the creation of a better business environment to attract foreign investors and entrepreneurs.
