US Dollar Recovering After WSJ & Reuters Predict Two Rate Increases

There was little excitement in the Asian session as the greenback continued to rebound adding 18 points to 96.78 after a report from the Wall Street Journal suggested that there would be two interest rate increases in 2015. After strong data on Friday, there remains this possibility. The WSJ report was followed up by a similar survey from Reuter’s which almost showed the same possibilities.

Wall Street ended higher on Friday amid Greece news that Eurozone confirmed it agreed to launch a new bailout program for Greece. Further sentiments boosted on positive economic data that raised expectation of an interest rate hike by Fed as early as September. US industrial production surged 0.6% in July, more than the 0.4% that had been expected. Further, U.S. Producer Price index rose 0.2%t in July, while core PPI also ticked up 0.2%, both beating estimates. The S&P 500 rose 8.15 points, or 0.4%, to close at 2,091.54 followed by Dow Jones Industrial Average DJIA advanced 69.15 points, or 0.4%, to finish at 17,477.40 and the NASDAQ gained 14.68 points, or 0.3%, to close at 5,048.24.

European stocks ended in the red in the wake of currency devaluation done by the Chinese government. The International Monetary Fund (IMF) has called on Eurozone ministers to offer Greece debt relief, following the approval of a new bailout deal. Greece will receive up to 86 billion euros in loans over the next three years, in return for tax rises and spending cuts. IMF chief Christine Lagarde welcomed the agreement, but warned Greek debt had become unsustainable, as per reports.

Disappointing news of our Japan was the market focus as the new week began. The Japanese yen fell against its crosses. Against the US dollar the pair trading at 124.40 and against the weakened euro at 137.90. Reuter’s reported that Japan’s economy shrank at an annualized pace of 1.6 percent in April-June as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation.

China’s economic slowdown and its impact on its Asian neighbors have also heightened the chance that any rebound in growth in July-September will be modest, analysts say. The gloomy data adds to signs that Japan’s economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year. The contraction in gross domestic product (GDP) compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed on Monday.

The Aussie dipped 4 points to trade at 0.7376 while the kiwi remained flat at 0.6537 both trading a bit off their recent bottoms. The New Zealand dollar has had a quiet few days ahead of a week that will include the next dairy auction and data from the United States.