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    Dollar rises on better-than-expected housing data

    USD

    The dollar rebounded on Tuesday after the release of better-than-expected housing data reinforced a positive outlook for the U.S economy and resurrected the possibility of a June rate hike.

    Housing is said to “lead the economy” and so financial markets tend to be very sensitive to changes in it. On Tuesday, figures showed a 20.2% rise in Housing Starts in April from 4.9% in the previous month, when a 9.6% rise had been forecast.

    As for Building Permits, they showed a 10.1% increase compared to the -5.5% of the previous month; investors had been expecting a 2.1% increase.

    Tomorrow could be a volatile day for the dollar as the minutes of the FOMC are set to be released.

    EUR

    The euro fell on Tuesday after ECB governing council member Benoit Coeure said the central bank was preparing to ‘front-load’ bond-buying ahead of the summer lull.

    On the data front the main release was sentiment data from the ZEW institute. The survey shows what financial professionals think about the economy. The May figures showed a fall in optimism about the ‘Current Situation’ in Germany to 65.7 from 70.2, when a lesser fall to 68.0 had been expected. In the euro-zone sentiment improved to -16.5 from -28.3 previously.

    The ‘Economic Expectations’ component of the survey, however, fell for both the euro-zone (by – 3.6) and Germany (by -11.4).

    Inflation Rate expectations increased amongst ZEW respondents, however, for both Germany (up 10.0 to 67.5) and the Euro-zone (up 10.0 to 63.4). Interest Rates – both long and short – were also viewed as probably rising as well.

    Other data showed CPI final estimate for April coming out at 0.0% yoy and 0.2% mom, and Core CPI at 0.6%, in line with expectations.

    GBP

    The pound weakened on Tuesday after data showed a fall in the consumer price index which dampened expectations of the BOE tightening monetary policy soon.

    The data failed to confirm more hawkish commentary from Governor Carney who said recently that the most likely direction of the next rate change would be ‘up’.

    April CPI slowed -0.1% yoy versus 0.0% a year ago; investors had been expecting it to remain at 0.0%. On a month-on-month basis CPI rose 0.2%, the same as March but lower than the 0.4% analysts had envisaged. Core CPI came out at 0.8% yoy from 1.0% previously when no-change had been estimated.

    Other data also showed a slow-down in Producer Prices, which are often seen as a leading indicator for the economy. PPI Output fell -1.7% yoy as previously, but failing to improve to the -1.6% expected; month-on-month it contracted to 0.1% – also as previously, and undershooting the 0.2% forecast.

    JPY

    The yen lost over 70 points against the dollar on Tuesday trading at 120.70 per dollar late in the London session after yesterdays lacklustre data from Japan.

    Early this morning the Bank of Japan Deputy Governor Kikuo Iwata appeared before the Upper House Financial Affairs Committee in the Japanese Parliament to testify on monetary policy. He confirmed that the Japanese economy was continuing to recover moderately, and that the central bank’s stimulus measures were having the intended effect.

    Going forward, all eyes will will be on the BOJ meeting with many believing the central bank might add to the stimulus to kick start the economy.

    Analysts will also be anticipating Japan’s annualised GDP data, scheduled for later today.

    USD

    The dollar rebounded on Tuesday after the release of better-than-expected housing data reinforced a positive outlook for the U.S economy and resurrected the possibility of a June rate hike.

    Housing is said to “lead the economy” and so financial markets tend to be very sensitive to changes in it. On Tuesday, figures showed a 20.2% rise in Housing Starts in April from 4.9% in the previous month, when a 9.6% rise had been forecast.

    As for Building Permits, they showed a 10.1% increase compared to the -5.5% of the previous month; investors had been expecting a 2.1% increase.

    Tomorrow could be a volatile day for the dollar as the minutes of the FOMC are set to be released.

    EUR

    The euro fell on Tuesday after ECB governing council member Benoit Coeure said the central bank was preparing to ‘front-load’ bond-buying ahead of the summer lull.

    On the data front the main release was sentiment data from the ZEW institute. The survey shows what financial professionals think about the economy. The May figures showed a fall in optimism about the ‘Current Situation’ in Germany to 65.7 from 70.2, when a lesser fall to 68.0 had been expected. In the euro-zone sentiment improved to -16.5 from -28.3 previously.

    The ‘Economic Expectations’ component of the survey, however, fell for both the euro-zone (by – 3.6) and Germany (by -11.4).

    Inflation Rate expectations increased amongst ZEW respondents, however, for both Germany (up 10.0 to 67.5) and the Euro-zone (up 10.0 to 63.4). Interest Rates – both long and short – were also viewed as probably rising as well.

    Other data showed CPI final estimate for April coming out at 0.0% yoy and 0.2% mom, and Core CPI at 0.6%, in line with expectations.

    GBP

    The pound weakened on Tuesday after data showed a fall in the consumer price index which dampened expectations of the BOE tightening monetary policy soon.

    The data failed to confirm more hawkish commentary from Governor Carney who said recently that the most likely direction of the next rate change would be ‘up’.

    April CPI slowed -0.1% yoy versus 0.0% a year ago; investors had been expecting it to remain at 0.0%. On a month-on-month basis CPI rose 0.2%, the same as March but lower than the 0.4% analysts had envisaged. Core CPI came out at 0.8% yoy from 1.0% previously when no-change had been estimated.

    Other data also showed a slow-down in Producer Prices, which are often seen as a leading indicator for the economy. PPI Output fell -1.7% yoy as previously, but failing to improve to the -1.6% expected; month-on-month it contracted to 0.1% – also as previously, and undershooting the 0.2% forecast.

    JPY

    The yen lost over 70 points against the dollar on Tuesday trading at 120.70 per dollar late in the London session after yesterdays lacklustre data from Japan.

    Early this morning the Bank of Japan Deputy Governor Kikuo Iwata appeared before the Upper House Financial Affairs Committee in the Japanese Parliament to testify on monetary policy. He confirmed that the Japanese economy was continuing to recover moderately, and that the central bank’s stimulus measures were having the intended effect.

    Going forward, all eyes will will be on the BOJ meeting with many believing the central bank might add to the stimulus to kick start the economy.

    Analysts will also be anticipating Japan’s annualised GDP data, scheduled for later today.


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