Dollar Win Streak Ends On Yuan Devaluation

The dollar closed out Friday’s trading session with a weekly loss versus both the yen and the euro, breaking a two week win streak after China’s central bank reported a significant policy change that destabilized the currencies of emerging markets and provided support for some of the industrialized competitors of the USD. The ICE U.S. dollar index climbed 0.2% to 96.3210, but lost 1% on the week. The index lost 1.6% of its value the first three days of the week, before climbing back on Thursday. The impact of the devaluation of the yuan frightened some investors into selling emerging-markets currencies, which in turn provided support for the euro and yen.

However, a round of robust data reports provided support for the dollar later in the week. Three economic reports were released on Friday — industrial production, consumer sentiment, and a producer-price index. Each of these are viewed by investors as being second-tier releases, but when combined with Thursday’s positive July retail sales data, they painted an rosy picture of economic growth that might tempt the Federal Reserve to increase interest rates when they meet next month. Retail sales data has missed economists’ forecasts in 6 out of 7 months, but the most recent report indicates that consumers may be beginning to join in on the larger scale economic recovery.

The yuan did stabilize on Friday, stopping a streak of swift depreciation that commenced after the People’s Bank of China declared on Tuesday that it would modify the way it establishes the yuan’s fixing rate to reflect market forces in a more accurate manner. The currency closed Friday at around 6.39 yuan per dollar, about the same as the previous day. The fixing rate is established each day by the PBOC and presents a mid-point in the trading band for the yuan for each day. Using the existing rules, the yuan will not be allowed to move more than 2% higher or lower than the fix.

The euro traded around $1.1112 on Friday, down 0.4% from the day before, while the dollar was trading at ¥124.29, a decrease from 0.1% on Thursday. The pound was last trading at around $1.5647, climbing 0.3% higher than the trading level seen late on Thursday. Investors will be watching to see if the solid reading on producer prices will make its way into this week’s consumer-price inflation report. The producer-price index climbed 0.2% in July, exceeding economists forecasts.

Chinese Authorities Guide Yuan Even Lower

The U.S. dollar struck a new two-month high level in opposition to the Japanese yen today, while resource connected currencies like the Australian dollar dropped considerably versus the dollar, as Chinese authorities took the yuan lower. The U.S. dollar increased to 125.28 yen, its top trading level since June 8th, before pulling back to ¥124.87. The dollar was trading at ¥125.13 yesterday afternoon in New York. The Australian dollar has dropped to $0.726 and ¥90.53 today, down from US$0.7301 and ¥91.39. The currency briefly traded at $0.7216 earlier today, its lowest trading level since 2009.

China guided its currency even lower today after it impacted global markets yesterday with its decision to drive the yuan down 1.9% in opposition to the U.S. dollar, the biggest devaluation in many years. The People’s Bank of China placed its fixed rate at 6.3306 a dollar, in comparison with Tuesday’s closing price of 6.3231 and fixed rate of 6.2298. As a result, dollar buying is strong, especially in opposition to resource-related currencies. Dollar buying did slow for a moment, but European investors would soon cause it to move again.

The U.S. dollar could possibly continue to strengthen in opposition to resource connected, risk vulnerable currencies that are prone to react to China’s actions or falling oil prices, but there might not bee much room to climb versus the yen and the euro while investors are concerned about an upcoming interest-rate increase in the United States. The U.S. dollar has weakened in opposition to the euro, which increased to $1.1089 at midday, up from US$1.1042. The WSJ Dollar Index is down 0.06% at last check to 88.93.

Among other currencies, the New Zealand dollar is down to $0.653 and ¥81.53 at midday, while the Canadian dollar has weakened versus the U.S. dollar, which climbed to $1.3111 Canadian dollars. The Nikkei Stock Average lost nearly 1.6% on the day following China’s most recent announcement, while the Shanghai Composite Index traded down 0.3%.

 

China Makes the Decision To Devalue the Yuan

China has made a decision to devalue the yuan as policy makers made a move to provide additional support to exporters and increase the role of market pricing. The central bank reduced its daily rate by 1.9%, setting off the yuan’s largest single-day decrease since China put an end to their dual-currency system over twenty years ago. The People’s Bank of China referred to the change as a one-time adjustment and said the correction will become more in line with supply and demand.

The announcement implies that policy makers are now putting a larger emphasis on initiatives to battle the biggest economic downturn since 1990 and decrease the government’s hold on the financial system. Authorities had been supporting the yuan to prevent capital outflows, safeguard foreign-currency borrowers and present a case for official reserve standing at the IMF. The yuan fell 1.8% to close out today’s session at 6.3231 per dollar in Shanghai. The currency dropped 2.6% to 6.3790 in offshore trading, the largest discount to the onshore spot rate in four years. The central bank permits the Shanghai rate to diverge up to 2% from its daily fixing, set at 6.2298.

The devaluation shook global markets, sending the currencies of South Korea, Australia and Singapore down by at least 1% amid bets that other countries will search for reduced exchange rates to help keep exports reasonably competitive. Chinese airline shares fell on concern that dollar debt costs will climb, while commodities pulled back on speculation that yuan weakness will deteriorate the buying strength of Chinese consumers. U.S. Treasuries gained ground on rising demand for dollar denominated assets.

Intervention with the exchange-rate added to a $300 billion decrease in Chinese foreign-exchange reserves during the course of the previous four quarters. It also assisted in making the yuan the best currency performer within the emerging markets, a contributor to last month’s 8.3% slip in exports. The yuan’s actual effective exchange rate rose 13% over the course of the last four quarters. The currency was the highest of 32 major currencies monitored by the Bank for International Settlements indexes.

 

Dollar Sheds Gains On Fed’s Fischer Comments

The dollar has shed some of its early gains today in opposition to its primary rivals after Fed Vice Chairman Stanley Fischer stated that the central bank will not be increasing interest rates until inflation is back to normal. Dollar traders are closely monitoring any and all comments related to the first interest rate increase since 2006, as the impending hike will influence the value of the USD. While many expect a September increase, economic data will likely need to remain positive, or at least stable, for that to happen.

The remarks are quite the opposite of those made by Atlanta Federal Reserve Governor Dennis Lockhart who was interviewed by The Wall Street Journal last week. During that interview, Lockhart remarked that U.S. economic data would have to decline considerably to stop the Fed from increasing rates when they meet again in September. Lockhart will be speaking at the Atlanta Press Club later today. The next meeting of the Federal Reserve rate-setting committee is scheduled to start on September 16th.

Investors will be paying extremely close attention to any comments coming from the Federal Reserve governors this week, as there is little in the way of important U.S. economic data to be released. Employee wages continue to be the prospective concern for the Fed. Even though wage growth has been noted, it is still rather subdued by standards and the more robust USD is not helping matters.

The ICE U.S. dollar index is up 0.2% to 97.7200 at last check. The euro has weakened somewhat and decreased to $1.0957. The currency was trading at $1.0969 Friday afternoon in New York. The dollar was last trading at 124.60 yen, and increase from the ¥124.21 level seen late Friday. The Australian and New Zealand dollars have been among the worst performers versus the U.S. dollar following the release of disappointing Chinese production data. The aussie is down to 73.67 cents from 74.19 cents on Friday, while the kiwi has fallen to 65.81 cents, down from 66.21 cents.

Positive Jobs Report Sends Dollar Higher

The dollar is gaining ground from its primary rivals following the release of new jobs data. The Labor Department stated that the U.S. economy added 215,000 jobs during the month of July. The number was close to the predictions issued by economists. One survey of economists showed a forecast of the addition of 220,000 new jobs. The new data shows that the labor market continues to recover and that should keep the Federal Reserve on course to increase interest rates in the foreseeable future.

The unemployment rate remain the same at 5.3%. Employment gains for the months of June and May were adjusted upward by a combined 14,000, according to the Labor Department. The government announced that 231,000 new jobs were produced in the month of June instead of the originally released number of 223,000. May’s increase was elevated to 260,000, up from 254,000. Over the course of the past three months the U.S. economy has produced an average of 235,000 job opportunities, an increase from a 195,000 average in quarter one.

The dollar climbed to 125.07 yen following the release of the report, its highest level versus the Japanese currency since the first week of June. It was trading at 125.64 yen just before the report was released. The euro fell to $1.0875 following the report release, its lowest level in two days. The currency traded at $1.0950 earlier in the day. The pound is down to $1.5444 after the data release, slightly higher than its lows from yesterday’s trading session. It was trading at $1.5520 in advance of the jobs data release.

 

BOE Minutes Send Pound Lower Vs. Dollar

The British pound is down after the release of minutes from a Bank of England policy meeting in which officials showed little support for an increase in the primary interest rate. Officials voted 8-1 to keep rates the same at this time, a clear indication that most officials were not strongly considering a hike. Today was the first time that BOE meeting minutes had been released together with an current policy outlook from the Bank Of England’s rate-setting panel and a quarterly statement on inflation outlook.

The pound was down to $1.5467, its lowest trading level in two weeks, following the release of the projections, inflation report and meeting minutes. The currency has since recovered marginally, trading at $1.5526 at last check, in comparison with $1.5602 yesterday afternoon in New York. Meeting minutes showed that several policy makers felt that it was too soon to increase interest rates, with the GBP’s strength offsetting growing inflation as the United Kingdom’s labor market continue to tighten.

Expectations for the exact timing of the next rate increased shifted forward after the batch of releases. Some are expecting an increase from the in May of next year, while others are expecting a boost in February. As conditions stand at the moment, an increase at some point in Q1 in not out of the question.

Meanwhile, the USD is trading near its high levels from yesterday’s session, maintaining gains in spite of an increase in weekly jobless numbers. U.S. economic data and statements coming from Federal Reserve officials have not provided clear timing for the next interest rate increase. The ICE U.S. Dollar Index is up 0.1% to 98.0150, positioned near its highest level in over two weeks.

The euro was last trading at $1.0910, down from $1.0903 yesterday evening. The dollar was last trading at ¥124.77 and is essentially flat. Investors are waiting to see how many work opportunities the U.S. economy added in the month of July. That data will be released at 8:30am EST tomorrow.

Dollar Climbing On ISM Report Release

The dollar has climbed to two-month high in opposition to the yen today after an assessment of service-sector growth published by the Institute for Supply Management climbed to its highest level in a decade. The dollar is up 0.6% to ¥124.90 at last check, in comparison with ¥124.30 yesterday afternoon in New York. Meanwhile, the euro is down 0.3% to $1.0857, falling from $1.0892 yesterday. The ICE U.S. Dollar Index is up 0.2% to 98.1270.

The gains for the USD begun after a few hours of choppy trading during which the dollar shed its gains from yesterday’s session following a round of disappointing economic data that included a weaker than anticipated reading on private-sector job growth and comments coming from Federal Reserve Gov. Jerome Powell, who down-played the odds that the Fed will increase its benchmark interest rate next month.

Although the British pound and Canadian dollar shed some of their earlier gains versus the dollar following the release of the ISM report, both continue to outperform today. Some market strategists are attributing the pound’s gains to positive investor sentiment in advance of a the Bank of England meeting which will be held tomorrow.

The Canadian dollar climbed after data revealed that Canada’s trade deficit fell to 480 million Canadian dollars, far exceeding reading that economists were expecting. Climbing crude-oil prices are also providing support for the loonie.

Dollar Climbs In Spite Of Weak Manufacturing Report

The dollar posted gains yesterday versus its primary rivals, managing to hold onto gains from the early hours of trading in spite of a disappointing U.S. manufacturing reading for the month of July. The manufacturing index indicated a marginal decline for the month, after having grown at its fastest pace in five months in the month of June. The index reading was 52.7% for July, down from 53.5% in Junes. Economists were expecting a reading of around 53.7%.

The report was one of the first in a busy week of data releases which will includes Friday’s nonfarm payrolls report. The jobs report for July is likely to be subject to more scrutiny than usual because the Federal Reserve recently stated that it would increase the Federal funds rate when “some further improvement in the labor market” have been noted. The word “some” was added to the statement that had been released in past reports.

Economists took the additional word to mean that growth within the labor market has been strong enough to raise the benchmark interest rate in September — the first increase since 2006. A robust NFP report could be all that the Federal Reserve needs to approve a September increase, which would push the U.S. dollar higher. Other important reports this week include U.S. factory orders, which will be released today, U.S. balance of trade data for June, expected Wednesday, and weekly jobless claims on Thursday.

The euro closed out yesterday’s the session near $1.0948. Earlier in the session, the currency managed to shake off reports which indicated strong growth within the French and German manufacturing sectors, as well as a large-scale selloff within the Greek stock market, which reopened yesterday after being closed for the past five weeks. The dollar shed some of its early gains versus the yen, last trading at ¥123.95. The ICE U.S. Dollar index has climbed 0.2% to 97.4970.

Thursday is likely to be a volatile day for markets. For the first time ever, a policy statement from the Bank of England will be released together with meeting minutes and a quarterly inflation report. The pound dropped to $1.5583, falling 0.3% from $1.5622 on Friday.

Euro Over $1.11 On Employment Cost Index Data

The euro has climbed above $1.11 today, and looks to be on track to avoid three consecutive sessions of declines after the employment-cost index revealed that wage inflation in Q2 was significantly lower than earlier data had indicated. Following a 0.7% rise in Q1, the index climbed by only 0.2% in Q2, its smallest gain since 1982. Economic experts were anticipating a 0.6% increase.

The index typically does not generate such a powerful market response, but the data, when taken into consideration alongside yesterday’s less than impressive gross domestic product data, has altered investors’ target date for the Federal Reserve’s imminent interest rate increase. Many now think the change will take place in December rather than September. The next increase will be the first since 2006.

The Labor Department’s NFP report from recent months had indicated that wage inflation had been fairly consistent. Several things have combined this week to lessen confidence about the next move by the Federal Reserve. In regards to a September rate increase, the most recent Fed statement did little to support it.

The euro most recently trimmed gains somewhat to trade at $1.1092. The currency was trading at $1.0938 yesterday afternoon in New York. The dollar was last trading at ¥123.58, down from ¥124.13 yesterday afternoon in New York. The ICE U.S. Dollar Index is down over 1%, reading 96.5110 at last check.

Federal Reserve policy makers revised their perspective on the U.S. labor market in their most recent policy statement, including the word “some” in the part of a statement that had said they needed to see “further improvement” within the labor market. This indicated that policy makers need only see marginal improvement in the employment market to rationalize a rate increase.

Even so, recent data suggests a lack of any progress, even suggesting that conditions are declining. Friday’s drop places the dollar on track to post a weekly loss in opposition to the euro, but the dollar continues to be on track to close out the month higher versus the currency.

Dollar Moves Slightly Higher Following Fed Statement

The dollar strengthened versus its rivals after Federal Reserve policy makers made it clear that a September interest-rate increase was not out of the question in an new statement published after their two-day July meeting came to a close.

Fed policy makers updated the statement to say that they need only see “some” additional improvement within the labor market before they would be willing to increase the central bank’s primary interest rate. This means that the nonfarm payrolls (NFP) reports for the months of July and August are likely to determine whether or not a rate increase takes place in September..

The latest statement suggested that the Federal Reserve’s rate committee feels that inflation will gradually move towards the target goal of just under 2%, even though price pressure continues to be soft. The U.S. dollar started to fall in value soon after the statement was publicized, but then quickly moved in a positive direction. The initial weakness was brought on by the fact that there was no explicit suggestion that a rate increase would be taking place in September.

Even so, the new statement does suggest that there is no reason to assume that a September increase will not take place. Any indication that the Federal Reserve will soon boost interest rates for the first time in nearly ten years tends to provide support the U.S. dollar. This is because higher U.S. interest rates would render the dollar a more appealing investment in opposition to many other currencies.

The dollar last traded at ¥123.92, up from ¥123.57. The euro lost ground versus the USD, last trading at $1.1008, down from $1.1060. The dollar moved very little versus the pound following the release of the statement, with the GBP trading at around $1.5612. The ICE U.S. Dollar Index has climbed 0.1% at 96.8470 at last check.