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    Dollar rises after surge of strong data increases likelihood of Fed hike

    USD

    Strong data led to a rally in the dollar on Tuesday, as the perception that the economy was improving increased expectations of an early Fed rate hike.

    Durable Goods Orders – excluding the one-off effect of big price-tag items such as air and ground transport and defence components rose more-than-expected.

    Durable’s Ex Transport increased by 0.5%, easily beating the 0.3% forecast; and Capital Goods Non- Defence Ex Air increased by 1.0% when they had been estimated to rise by only 0.3%.

    Housing data was more mixed: showing the House Price Index mom in March rose by 0.3% versus the 0.7% expected from 0.7% previously. QoQ, however, the index rose by 1.3% against 1.1% forecast.

    The S&P Case Shiller 20-Composite house price index increased to 5.04% from 4.99% previously when analysts had estimated a fall to 4.60%. New Home Sales rose by 6.8%, higher than the 5.0% estimated.

    Services PMI in May fell to 56.4 from 57.4 when it had been expected to come out at 56.5.

    Consumer Confidence in May, came out at 95.4 when it had been expected to rise to only 95.0 from 94.3.

    EUR

    The euro fell on Tuesday as concerns mounted about the outlook for Greece, due to the possibility that the country might default, particularly following recent comments from the Interior minister, who said Greece could not afford the 1.6bn of repayments pending in June.

    According to the Finance Minister Varoufakis the government has sufficient funds to make the first repayment of 350m, falling on June 5, however, after that there is a question mark over future payments.

    Today the respected former head of Pimco, the largest bond fund in the world, Mohammed El Erian said that he thought the probabilities of Greece defaulting had risen to 55-60% – a surprisingly high figure.

    Part of the problem stems from the inability of the government and its international creditors to agree a compromise on the sorts of economic reform programmes the government needs to implement to satisfy the international community and unlock aid.

    The Greek government will not sacrifice a cherished social policy and key election pledges to protect wages and pensions, whilst creditors want deeper austerity.

    GBP

    The pound traded mixed on Tuesday – falling to the dollar but rising against the euro and the yen, after a lack of data meant that it was more subject to drivers affecting counterparts than its own domestic news, of which there was little which could be expected to move markets.

    Fears of a Greek default drove German safe-haven bund yields down as investors flocked to them, widening the spread between them and U.K Gilts and thus helping the pound as the higher yield on U.K bonds made them more attractive to investors.

    The dollar rose versus sterling, however, after positive data out of the U.S showed an increase in Durables EX Transport and Consumer Confidence.

    On the data front the Consortium of British Industry (CBI) recorded a much higher-than-expected increase in Reported Sales to 51, versus the 12 previously and 20 expected.

    JPY

    The yen lost almost 50 points versus the dollar in trading on Tuesday amidst warnings from the IMF and improved economic data in the USA.

    Traders continued to worry about the Japanese economy after warnings from the IMF said that Prime Minister Abe and the central bank needed to take more aggressive action.

    BOJ Governor Kuroda said the Japanese economy was now overcoming deflation, offering an upbeat outlook for the nation’s economy. He saw no need for further easing measures to achieve the 2.0% inflation target. Yet as reported yesterday, the bank stood ready to expand the stimulus again if the nation’s economy faltered and threatened to disrupt the broad up-trend in inflation. Consumer prices are likely to start rising again once the impact from a sharp fall in oil prices starts to fade, he added.

    A more detailed breakdown of the balance of trade data released yesterday showed the overall deficit was the narrowest since March 2009. with the value of crude oil imports plummeting 34.6% yoy with a 51% drop last month alone, while the export of cars rose only 7.2% yoy compared with 10.5% jump last month. The overall volume of imports climbed 0.1% yoy while exports surged 1.8%.

    The Government and BOJ are relying on demand from overseas to support stronger growth in the fiscal year through March 2016 after the economy was derailed by the nation’s sales tax hike last year.

    USD

    Strong data led to a rally in the dollar on Tuesday, as the perception that the economy was improving increased expectations of an early Fed rate hike.

    Durable Goods Orders – excluding the one-off effect of big price-tag items such as air and ground transport and defence components rose more-than-expected.

    Durable’s Ex Transport increased by 0.5%, easily beating the 0.3% forecast; and Capital Goods Non- Defence Ex Air increased by 1.0% when they had been estimated to rise by only 0.3%.

    Housing data was more mixed: showing the House Price Index mom in March rose by 0.3% versus the 0.7% expected from 0.7% previously. QoQ, however, the index rose by 1.3% against 1.1% forecast.

    The S&P Case Shiller 20-Composite house price index increased to 5.04% from 4.99% previously when analysts had estimated a fall to 4.60%. New Home Sales rose by 6.8%, higher than the 5.0% estimated.

    Services PMI in May fell to 56.4 from 57.4 when it had been expected to come out at 56.5.

    Consumer Confidence in May, came out at 95.4 when it had been expected to rise to only 95.0 from 94.3.

    EUR

    The euro fell on Tuesday as concerns mounted about the outlook for Greece, due to the possibility that the country might default, particularly following recent comments from the Interior minister, who said Greece could not afford the 1.6bn of repayments pending in June.

    According to the Finance Minister Varoufakis the government has sufficient funds to make the first repayment of 350m, falling on June 5, however, after that there is a question mark over future payments.

    Today the respected former head of Pimco, the largest bond fund in the world, Mohammed El Erian said that he thought the probabilities of Greece defaulting had risen to 55-60% – a surprisingly high figure.

    Part of the problem stems from the inability of the government and its international creditors to agree a compromise on the sorts of economic reform programmes the government needs to implement to satisfy the international community and unlock aid.

    The Greek government will not sacrifice a cherished social policy and key election pledges to protect wages and pensions, whilst creditors want deeper austerity.

    GBP

    The pound traded mixed on Tuesday – falling to the dollar but rising against the euro and the yen, after a lack of data meant that it was more subject to drivers affecting counterparts than its own domestic news, of which there was little which could be expected to move markets.

    Fears of a Greek default drove German safe-haven bund yields down as investors flocked to them, widening the spread between them and U.K Gilts and thus helping the pound as the higher yield on U.K bonds made them more attractive to investors.

    The dollar rose versus sterling, however, after positive data out of the U.S showed an increase in Durables EX Transport and Consumer Confidence.

    On the data front the Consortium of British Industry (CBI) recorded a much higher-than-expected increase in Reported Sales to 51, versus the 12 previously and 20 expected.

    JPY

    The yen lost almost 50 points versus the dollar in trading on Tuesday amidst warnings from the IMF and improved economic data in the USA.

    Traders continued to worry about the Japanese economy after warnings from the IMF said that Prime Minister Abe and the central bank needed to take more aggressive action.

    BOJ Governor Kuroda said the Japanese economy was now overcoming deflation, offering an upbeat outlook for the nation’s economy. He saw no need for further easing measures to achieve the 2.0% inflation target. Yet as reported yesterday, the bank stood ready to expand the stimulus again if the nation’s economy faltered and threatened to disrupt the broad up-trend in inflation. Consumer prices are likely to start rising again once the impact from a sharp fall in oil prices starts to fade, he added.

    A more detailed breakdown of the balance of trade data released yesterday showed the overall deficit was the narrowest since March 2009. with the value of crude oil imports plummeting 34.6% yoy with a 51% drop last month alone, while the export of cars rose only 7.2% yoy compared with 10.5% jump last month. The overall volume of imports climbed 0.1% yoy while exports surged 1.8%.

    The Government and BOJ are relying on demand from overseas to support stronger growth in the fiscal year through March 2016 after the economy was derailed by the nation’s sales tax hike last year.


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