U.S. Dollar Flat as Soft Data Countered by Accommodative Central Banks
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THE TAKEAWAY: The U.S. Dollar experienced a volatile week and ended largely flat as poor data was countered by Central Bank policy makers.
The U.S. Dollar trended downwards early in the week as soft data weighed on the currency of the world’s largest economy. A poor ISM Manufacturing print of 51.3 versus an expected value of 54.0 and a previous value of 54.2 saw investors pull their money out American Dollar denominated assets as growth concerns began to gather momentum. The Greenback lost further ground as the Australian Dollar gained ground after the RBA decided at their April meeting to hold rates at 3.00 per cent reaffirming the so called ‘Aussie’ as a perfect candidate for ‘carry trades’. The Dollar rallied into Tuesday as the S&P500 saw gains but this rally was short lived as again, poor employment data was released. Economists were expecting an employment change of 200,000 jobs, but markets were disappointed when the value printed at 158,000 - a full 79,000 less than the previous amount.
Moves due to the less than impressive data were dwarfed as the Bank of Japan concluded their two day meeting and announced a new ‘Quantitative and Qualitative Monetary Easing’ Policy. This saw the Yen lose more than 3 per cent against the U.S. Dollar as Japan’s Central Bank decided to increase JGB purchases and expand the monetary base. On the other side of the world, the ECB met and as expected, kept rates on hold at 0.75 per cent. However, it was the comments by the ECB President Mario Draghi that caused moves in the currency markets. After briefly slumping due to comments made by Draghi that implied that interest rate cuts were higher on the ECB’s agenda, the Euro rallied against the Dollar as investors saw reason to be optimistic on the region’s growth prospects.
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