The U.S. dollar gained versus the EUR but extended losses against the Japanese yen on Friday after the U.S. consumer sentiment index unexpectedly declined in early August. The data pushed U.S. stocks lower, aiding the Dollar which has tended for months to move in the opposite direction as equities as investors’ willingness to buy riskier assets fluctuates. Traders said that the risk aversion is back with the U.S dollar strengthening against the EUR and British pound but weakening against the Japanese yen. The Greenback Recovers
After going through a week of falling trends, the Dollar finished last week with significant strengthening against most of the major currencies, closing the week at similar levels to ones it started at. Nevertheless, against the Yen the Dollar continued to drop, and the pair slid to beneath the 95.00 level.
The Dollar’s early downfall came mostly as a result of the negative U.S economic data. The Federal Budget Balance continues to show overstating negative figures, proving that the federal budget is well in deficit. In addition, both the Retails Sales indices, the general report and the core report, delivered negative figures, emphasizing that the U.S consumers have yet to regain their faith in their financial security. The fact that the Fed avoided from hiking Interest Rates, despite its record low, also supported the weakening Dollar. However, it seems that the relatively positive inflation data, which were delivered due to the Consumer Price Indices (CPI), have managed to reverse the Dollar’s downtrend. The drop in commodities value, such as Gold and Crude Oil, was another main factor in the USD recovery. Looking ahead this week, many impacting data is expected from the U.S economy. It seems that the main publications might be the Building Permits and the Producer Price Index (PPI) on Tuesday, and the Existing Home Sales on Friday. The Building Permits are expected to report the best figures in 8 months, and the Dollar is likely to strengthen as a result. However, the PPI is forecasted to deliver its first negative figure since March. Negative inflation data could erase the Dollar’s recent recovery. The Existing Home Sales are another economic indicator that could support the Dollar. Analysts forecast that 5.03M residential buildings were sold during July, in what could be the best result in 10 months. Traders are advised to follow the publications of these indicators in order to manage their trading this week.