There was some profit-taking in the US dollar after it reached a fresh 12 ½- year high versus the yen at 124.29. The yen has been dropping the most despite the fact that there haven’t been economic releases that significantly change the outlook for Japanese monetary policy. However, there has been renewed optimism for the prospect of rate hikes out of the United States later this year, which has been backed by some stronger-than-expected US economic figures. The yen held up relatively well versus the dollar since the beginning of the year, before the sell-off of the last couple of weeks that has driven it to multi-year lows.
The latest news out of Japan was April retail sales, which came in much weaker-than-expected at a 0.4% month-on-month pace relative to expectations of a 1.1% gain. The year-on-year increase was a flattering 5.0%, since the base month of April 2014 was the first month after the sales tax increase and consumption was particularly weak back then as most consumers had shifted their purchases to earlier months.
The Nikkei added to its recent gains on the back of yen weakness and as US stocks rallied the previous day on strength in technology names.
The euro managed to climb above the 1.09 mark once more as there were conflicting reports from the negotiations between Greece and its creditors. Statements from Greek officials that a deal was very near were countered by EU officials who said that much work remained to be done. Nevertheless the euro rose to 1.0939 against the dollar – perhaps on optimism that a deal would eventually be struck. The euro also reclaimed the 71 pence mark versus sterling by trading at 0.7117.
Another currency that was weak against the dollar in addition to the yen was the Australian dollar. The aussie slipped almost 70 pips below the 77 US cents level before rebounding to 0.7710. The reason for the big drop in the aussie was surprisingly weak private capital expenditure for the first quarter. Capex fell by 4.4% quarter-on-quarter against expectations it would drop by only 2.3%. Weak capex could convince the Reserve Bank to continue with more interest rate cuts – if other data also points to weaker economic growth.
With respect to today’s calendar, the revision of the first quarter growth numbers out of the UK will be looked at, although the first quarter is definitely well into the market’s rear-view mirror. Eurozone economic sentiment for May is expected to drop slightly from the previous month’s level, but still remain close to its 4-year high. The US session will feature weekly jobless claims and pending home sales for April out of the United States. Throughout the day there could also be some headlines from the G7 meetings of central bankers and finance ministers.