Dollar Rebounds on Hawkish Comments from Fed Presidents (page 2 of 2)

The surprising deterioration in European economic data has pushed the British pound higher against the Euro while the recovery in the US dollar has led to a mild depreciation of the GBP/USD.

The current state of the UK economy and the Bank of England's stance is quite clear, so the projections of the future valuation of the pound is really dependent upon how well the Eurozone economy holds up, whether the ECB decides to raise interest rates in September and whether the US Federal Reserve is truly done with raising rates this year.

The softer than expected consumer spending and inflation reports that we have seen from the UK indicate that the Bank of England will probably keep interest rates at its current level for the foreseeable future. Even though Eurozone data is deteriorating, the ECB is still expected to raise interest rates again this - it is just a matter of timing. Therefore weakness in the EUR/GBP could remain limited.

Japanese Yen

The US dollar is stronger against the Japanese Yen as last week's weaker tertiary activity index is followed by last night's weaker all activity index which increased by 0.1 percent, compared to the market's forecast for a 0.2 percent rise.

Like European data, Japanese economic data is beginning to show signs of moderation and will probably continue to unless we see a resurgence in global economic activity or subsiding geopolitical tensions that take oil prices back below $70 a barrel. However much of the yen weakness against the dollar can be attributed to demand for yen crosses. We have seen major moves in CAD/JPY, GBP/JPY and AUD/JPY over the past two days.

Even though EUR/JPY and CHF/JPY are slightly lower today, they are simply working off the extreme rally they had the day prior. EUR/JPY hit a fresh record high yesterday. Later this week, we are expecting inflation numbers from Tokyo and the country as whole - the market is still looking for any reasons that may convince the Bank of Japan to raise rates again this year. Strong CPI numbers would be needed to put a floor under the Yen's recent slide.