The U.S. dollar traded near one week highs versus the euro and yen after two key economic releases. Yesterdays reading from Philadelphia's Fed showed slight growth in mid Atlantic factory orders after 2 consecutive declines. Secondly, weaker-than-expected U.S housing start report was largely ignored despite falling 14.6%, the lowest since 2000. Overall, investor sentiment is the U.S. economy is headed for a soft landing with inflation seemingly contained, oil prices falling, and the Fed holding rates at 5.25% for the immediate future. Expect the dollar to weaken when the true effect of the housing downturn impacts the economy.
The euro traded weaker against the greenback and yen despite the release of euro zone's trade balance reporting a surplus of 2 billion, surpassing expectations of a 2.5 billion deficit. The positive reading was attributed to a decline in oil prices and continued healthy growth in exports. Also, Europe’s trade deficit with China and Japan rose 21% and 17%, respectively. The growing imbalances with Asia will likely reignite dialogue regarding the Chinese yuan and yen appreciation at the G20 summit of finance ministers and central bank governors this weekend. Look for euro to rally once the currency breaks out of its current range bound trading.
The Japanese yen weakened slightly against the dollar on the back of positive economic releases from the U.S. and the Eurozone. Trading was light without any economic releases overnight. Look for range bound trading as the market awaits the outcome of the G20 summit meeting of finance ministers and central bank governors this weekend.
Sterling continued its upward move against the dollar and euro after yesterdays stronger than expected UK retail sales data. Bank of England Governor Mervyn King stated inflation will likely rise further above its 2 percent target in the near term before sliding back to meet it. Look for further strength in the pound as the economy continues grow at a brisk pace.
The Canadian dollar continued is decline against the greenback on the back of falling commodity prices, specifically oil. Crude was trading around the $55/barrel level. Look for the loonie to follow the direction of oil prices.
The Mexican peso weakened against the dollar on falling oil prices and uncertainty surrounding Lopez Obrador who will reportedly declare himself president on Monday which is a holiday in Mexico, known as Revolution Monday. He claims that he was robbed of victory after losing in a closely contested election to Calderon. Overall, investors are bullish on the Mexican economy but will wait to see how Monday’s events unfold.
The Chinese yuan weakened against the dollar for the fifth straight day. There are rumors the central bank appears to aim to keep the yuan steady for a while after a faster pace of appreciation in the past couple of months. Expect the yuan to continue its upward movement.
