The Euro-Zone Statistics Data Are Encouraging

August 7, 2013

The US dollar was traded downwards on Tuesday against most major currencies amid the release of positive euro-zone data despite the US trade balance improvement. Also the statements of some FOMC members had a negative effect on the dollar. Thus, though Atlanta Fed President Dennis Lockhart announced on Tuesday that the statement concerning tapering off of the bond purchase program might be done at any Fed meeting this year, he added that the Fed was ready to put off and reconsider the issue about bond purchase tapering off if the data was disappointing. FOMC member Evans also said that asset purchase could last under “certain conditions” – even if the unemployment rate is lower 6%. 

According to the US Department of Commerce trade balance deficit decreased by more than 22% in June from $44.1 bln to $34.2 bln – the lowest reading since October, 2009- which may lead to the revision of the GDP growth for the second quarter upwards at the end of the month. The exports grew by 2.2% (the largest growth since September, 2012) mainly due to the export of manufacturing equipment and services at a record cost. The imports fell by 2.5%, which has led to a sharp decrease of the trade balance deficit. At the same time IBD/TIPP Economic Optimism Index showed a decrease of consumer confidence in August by 2 p. to 45.1 against 47.1in July.

The euro rose higher 1.33 on Tuesday against the dollar amid positive German and Italian data which say about a possible recovery of the European economy in the second half of the year. German factory orders rose significantly by 3.8% in June compared with the prior month against the expected growth only by 1%. At an annual rate the growth accounted for 4.3% while a growth only by 0.3% was forecasted. Italian GDP in the second quarter fell less than forecasted. The decrease accounted for 0.2% at a quarterly rate and 2% at an annual rate – against the expected drop by 0.4% and 2.2% respectively. Though Italian economy is still in recession, GDP rate data are encouraging.  

The pound slowed down its growth and finished the day unchanged before the BoE Inflation Report publication despite industrial production growth that had considerably exceeded the forecasts. According to the Office for National Statistics industrial production of the UK rose by 1.1% in June compared with May against the forecasted growth by 0.7%. Manufacturing production increased by 1.9% against the forecasted growth by 1% - which turned out the highest growth within the year. Halifax House Price Index also considerably rose in July by 0.9% in comparison with June while a growth only by 0.5% was forecasted. The signs of the economy improvement have a positive у impact on consumer confidence. 

The yen was traded upwards on Tuesday before the Japanese central bank meeting and on the back of stock market decrease. The Bank of Japan is expected to refrain from expanding stimulus programs at its meeting on 7-8 of August. The Australian dollar grew significantly after the Australian Reserve Bank decision to lower the base interest rate by 0.25% to record low of 2.50%. The decision was expected and therefore fully included in prices, which led, in fact, to profit-taking on short positions. The AUD net short position, according to the CFTC, has reached new record levels.

New Zealand dollar also grew after the fears of dairy exports from the country had been slightly reduced. The message of the Fonterra Company about its readiness to double any quality standards forwarded by China and also a successful GlobalDairyTrade auction where the prices had fallen relatively moderately, were supportive. Though Russia and China suspended the import of some New Zealand dairy products, the prime minister of New Zealand declared about his intentions to visit China to persuade Chinese authorities to change the decision. The Finance Minister Bill English said that the banned exports cost was not high and he didn’t expect it to impact the country’s GDP.

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