The release of positive US forex news buoyed the dollar in Tuesday’s (April 14) trading. The EUR/USD currency pair traded at 1.2335 during the late morning trading session, which was 0.05% above the day’s opening price but below the previous intra-day low of 1.2340. In the past day’s trading, the EUR/USD had fallen from the 1.2385 intraweek high to test support levels at 1.2340.
According to forex news from the Commerce Department, US retail sales grew by 0.8% in July from a 0.7% fall in June. The increase followed three consecutive months of declines, and was the result of increased consumer spending in clothing, cars and furniture. July retail sales hit a seasonally adjusted $403.9 billion, up by 21.4% from the recession-caused low that sales hit in March. All of the major retail categories recorded increases, which analysts believed may show that consumers are finally regaining their confidence and spending again, following the longest period of declines since fall 2008.
Meanwhile, the Bureau of Labor Statistics reported that the US producer price index rose by a higher-than-expected 0.3% in July, from 0.1% in the previous month. It has been expected that the PPI would increase by 0.2 percent. Core PPI rose by 0.4% in July, which exceeded expectations for an increase of 0.2 percent; PPI had increased by 0.2% in June. Core PPI measure price adjustments but excludes food and energy in order to provide a more accurate gauge of long-term inflationary pressures without the volatility created by these two categories.
On a year-to-year basis, PPI increased by 0.5% from the same period last year, lower than the 0.7% recorded in June but in line with analysts’ expectations. Core PPI on an annualized basis grew by 2.5% in July, a decline from 2.6% in June.
As far as the effect of these forex news developments on the market goes, retail sales is seen to have a positive effect as they reflect increased optimism on the part of consumers as well as a stronger economy. On the other hand, while PPI is seen not to affect the currency market directly, the data affects it indirectly by influencing investor sentiment, since it is viewed as a general predictor of inflation. Higher inflation rates have a negative effect on the economy since it means that consumers can buy fewer goods and services using the same amount of money. Inflationary pressures also pull down the value of a currency since it means that demand for it increases.
Earlier forex news that affected the EUR/USD currency pair was the release of Euro Zone GDP figures, which showed that the economy of the currency region was contracting in the second quarter after recorded zero growth in the previous quarter. Analysts viewed the GDP figures as a possible indicator that the region may soon fall into recession if the succeeding quarter also shows a contraction, since recession is formally defined as two consecutive quarters of contraction. However, market losses were mitigated by continued optimism among market players that global central banks would intervene to stimulate economic growth.