The US dollar retained its strength on hope the U.S. economy is recovering. The Federal Reserve is expected to keep interest rates unchanged after a two-day meeting starting today.
The euro skidded on speculation that the European Central Bank will keep interest rates steady after consumer prices in Germany posted their first annual drop in more than 22 years in July. Last week, the ECB said interest rates are ‘appropriate” and will remain steady in the near-term.
The British pound softened ahead of tomorrow’s Bank of England’s inflation report. The market is worried that the report may indicate that the country is facing deflation. BOE mentioned recently that a stronger currency is not good for the economy. The sterling has been under pressure since last week when the BOE surprised the market by extending its asset-purchasing program, suggesting that financial conditions remain weak. Meanwhile, news that the drop in UK house prices slowed, while retail sales picked up is expected to limit sterling losses.
The Japanese yen accelerated as risk adverse buyers reentered the markets and favored the safe haven yen after Chinese exports and new loans fell, and U.S. stocks declined. Chinese exports sagged 23 percent in July from a year earlier.
The Canadian dollar remains weak from disappointment over last week’s sluggish Canadian jobs report. The market is looking ahead to Canadian housing starts for July for any signs of an economic recovery. Meanwhile, crude oil fell below $70 a barrel as the U.S. dollar appreciated.
Both the Australian and New Zealand dollar tumbled as investors took profits after sluggish Chinese economic data. Chinese industrial output and new lending came out weaker than expected. Meanwhile, Australian business confidence rose to its highest level in two years in July as firms reported better sales, profits and employment.
