Monday’s Currency Trading A Boring Affair

Wall Street closed in the negative territory on Monday. The weakness that emerged on US markets partly reflected lingering concerns about global economic growth and monetary policy divergence. European markets steadied Monday, but gains were tempered by skepticism about the European Central Bank’s promise of further measures to bolster the region’s sluggish economy. European traders are focused on German data that has been printing on the lackluster side over the past weeks. Today traders will get to see ZEW business confidence reports which could send European equities and the euro tumbling. Asian markets are trading on a positive note today ahead of the estimates of favorable economic data from the US in tomorrow’s trade. Expected divergence between U.S. monetary policy and those of the euro zone and Japan was a key ingredient fuelling the dollar’s surge to a two-year high versus the euro and six-year peak against the yen at the start of the month.

With Germany’s economic outlook and its potential impact on the Fed’s views on the global economy in recent focus, the currency market will scrutinize Germany’s ZEW sentiment index and euro zone industrial output due later in the session.

The US dollar is climbing in the morning session adding 20 points to reach 85.48. The US Dollar Index (DX) traded on a negative note and declined around 0.4 percent yesterday on the back of estimates that US Federal Reserve will keep interest rates lower for longer period of time. However, weak market sentiments which led to rise in demand for the low yielding currency cushioned sharp negative movement in the DX. The U.S. dollar retreated against other major currencies Monday as Federal Reserve officials said over the weekend that a sharp slowdown in the global economy could delay the increase of U.S. interest rates. The dollar index, which tracks the greenback against six major currencies, was down 0.47 percent at 85.510 in late trading. “If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,” Stanley Fischer, Fed’s vice chairman, said in a speech at the International Monetary Fund (IMF)’s annual meetings last Saturday, signaling the central bank may keep the current low interest rates in place for the near future.

Fischer’s remarks were echoed by other Fed officials. Fed Governor Daniel Tarullo said at the same day that he was worried about global growth, while Chicago Fed President Charles Evans said earlier that a strengthening of the dollar and weak growth abroad could mean less justification for the Fed to raise rates.

In late trading, the euro increased to 1.2679 dollars from 1.2615 dollars in the previous session, and the British pound rose to 1.6061 dollars from 1.6052 dollars. The Australian dollar went up to 0.8760 dollar from 0.8708 dollar. The dollar bought 107.33 Japanese yen, lower than 107.84 yen of the previous session. Monday had very little on the economics calendar outside Chinese trade balance and there was little in the way of news headlines. Today is expected to follow cues from Monday.