The greenback enjoyed gains against most major currencies last night as investors shrugged off increasing speculation that the Federal Reserve is edging towards stimulating the U.S. economy with monetary easing tools. This would normally send the USD down in trading but the profit takers and bottom feeders ensured the EUR/USD’s strongest one-day rally since the beginning of July came to an end.
Also coming to an end overnight was the decline of Asian stocks, seeing their first advance in 5 days. This came after a drop in U.S. new home sales fueled speculation the Fed may take new action to prompt growth, boosting demand for growth sensitive shares. Hong Kong’s Hang Seng Index was up 0.05%, Australia’s S&P/ASX200 was up 0.41%, while Japan’s Nikkei 225 Index was up 0.50%.
Housing, which threw the U.S. into a recession several years ago, continues to weigh on its recovery. Yesterday, the Census Bureau reported that new home sales dropped by 8.4% to a seasonally adjusted 350,000 units in June, worse than the expected decline of 2.6% to 372,000 and was the steepest slide since February 2011.. New home sales for May were revised up to 382,000 units from a previously reported 369,000, whilst the average price fell 1.5%
The Federal Reserve’s monetary policy body will meet on July 31 for a 2 day conference to address monetary policy, and consensus is mounting that the Fed will roll out a fresh round of easing measures. Quantitative easing and other monetary stimulus measures are generally bullish for stocks, which pushed Asian shares higher. However concerns that the global economy is still suffering tempered the stock gains.
In Germany, the Ifo research institute reported its Business Climate Index fell to 103.3 in July, the lowest level since June 2010, from a reading of 105.2 in June after markets were expecting a 104.7 reading. Meanwhile in Spain, the yield on Spanish 10 year bonds increased to a euro era high of 7.71%, way above the 7% threshold considered unsustainable by the markets.
Over in the UK, enjoying the build up to the Olympics, it was confirmed yesterday that The UK recession has deepened, latest official figures have shown, after the output of the economy fell by 0.7% between April and June. The contraction was much larger than expected and follows a 0.3% drop in the first three months of the year. The GBP/USD was down 0.11%