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Euro Falls from Three-Week High

Trading on Tuesday saw the euro retreat from the high it reached on Monday. Amid a host of negative economic news, the euro dropped to $1.2260. On Monday, Europe’s currency reached a three-week high of $1.2400. Support is seen at $1.2216. Meanwhile, hopes of a stimulus kept risk currencies like the Aussie at multiple month highs.

The euro reached 95.85 yen during trading on Tuesday. On Friday, the currency was at a 1.5 week high of 97.22.  It was last at a record low of A$1.1646 versus the Australian dollar.

Australian Dollar Out Performs Safe Haven Currencies

The Australian dollar recently reached $1.0501 against the greenback. During trading on Monday, the Aussie managed to hit a four-month high of $1.0508. Rumors indicate that the Swiss National Bank’s foreign exchange reserve may be purchasing more Australian dollars.

Dollar Index Rises

The dollar index managed to gain from a three-week trough of 82.343. It was last at 82.31. This gain was aided by the recent drop in the euro. The greenback is trading at 78.15 yen as investors wait for the Federal Reserve’s meeting report on Wednesday. The European Central Bank will also be reporting their minutes on Thursday. Trading is expected to be lower than usual as investors cautiously wait for decisions from the Fed and ECB.

Yen Appealing Safe Haven

As economic data floods in, it appears like the global economy is about to suffer from another slowdown. This drop in the economy has sent safe haven currencies like the Japanese yen to record highs. Earlier this month, the yen reached an 11-year high against the euro. Against the greenback, the yen was just 4 percent off of its postwar record of 75.35 yen. In order to keep their currency down, the Bank of Japan has started considering whether the central bank should buy more foreign-currency bonds. The Deputy Governor Hirohide Yamaguchi says that this purchase cannot happen because weakening the currency would be a violation of the central bank’s law.

The last time Japan sold its currency was in November of 2011. This sale marked the third-largest yearly amount on record and totaled 14.3 trillion yen. At the time, the United States Treasury Department critiqued Japan’s decision. In the last three months, the yen has appreciated 5.9 percent. The ongoing debt crisis in Europe and weak United States economy has bolstered the Japanese yen.

Treasury Trades Drop

According to ICAP Plc, trades of the United States government debt fell to $203.4 billion for July 29. On July 27, Treasury bond trades were at $330.3 billion. This rate marked the highest levels of trade since June 6 of 2012. On average, daily trades totaled $240.1 billion per day in 2012.

German bonds dropped two basis points to a level of 1.38 percent. Meanwhile, Spanish government bonds dropped 13 basis points to trade at 6.61 percent. This marks the fourth consecutive day that the Spanish bond rate has fallen and ailed some investor concerns over a full-scale bailout. Historically, Eurozone countries have required a full scale bailout when their bond rates breached 7 percent. In the last month, Spain has topped this level several times.

On Wednesday, the Federal Open Market Committee will begin two days of meetings. Although last month’s meeting brought few policy changes, the Fed may act this month. Once the manufacturing report and July’s payroll are released, the Fed will have a clearer view of how the economy is performing. After last week’s dismal second-quarter GDP report, the Fed may be forced to take action.

 From 2008 to 2011, the Federal Reserve Bank purchased a total of $2.3 trillion in securities. Federal Reserve Chairman Ben Bernanke stated in testimony earlier this month that the Fed may start a third round of quantitative easing if the markets deteriorate further. Currently, the Fed is still carrying out Operation twist. This program is intended to aid the economy for trading short-term Treasury bonds for longer-term options. If the Federal Reserve chooses to do a third round of quantitative easing, it would most likely be to the sum of $400 to $500 billion.  

United States Payroll May Rise

In the month of June, nonfarm payrolls only garnered an additional 80,000 workers. Economists’ predictions for July indicated that the United States gained 100,000 nonfarm employees during the month. A survey of key market analysts shows that unemployment in the United States is expected to stay at its current level of 8.2 percent. 

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