Dollar falls against yen, Fed minutes in focus

A money changer holds stacks of US dollar notes in Jakarta, August 29, 2013.

The dollar weakened on Monday against the Japanese yen as investors continued to digest last week’s strong U.S. employment report and speculated about when the Federal Reserve is likely to begin raising U.S. interest rates.

The yen gained as long-dated U.S. Treasuries rallied, stemming a week-long bond selloff heading into Thursday's employment report, which showed nonfarm payrolls increased by 288,000 jobs last month and the unemployment rate fell to 6.1 percent from 6.3 percent in May.

The next major focus will be the release on Wednesday of minutes from the Fed’s June meeting, which will be scoured for signs about when central bank members see an interest rate increase as likely.

“The discussion won’t reflect the strong bounce in nonfarm payrolls, but will serve as a reference as to what the internal debate is in the FOMC regarding the first rate hike,” said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto.

Goldman Sachs economists on Monday brought forward their expectations of the first rate increase to the third quarter of 2015 from the first quarter of 2016, following similar actions from some other banks last week.

The dollar fell 0.27 percent against the yen to 101.84 yen, down from 102.10 yen late on Friday.

The dollar also slipped 0.01 percent against the euro to $1.3604. It had strengthened to $1.3577 earlier on Monday after data showed German industrial output fell 1.8 percent on the month in May, its biggest drop in more than two years.

The weak German data kept alive expectations the European Central Bank may need to loosen monetary policy further in coming months in the face of disinflationary pressures and subdued economic growth.

The dollar index, which tracks the greenback against a broad basket of currencies, was unchanged at 80.220, down from an earlier high of 80.359, the highest in a week-and-a-half.

Source:

www.reuters.com

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German Industrial Output Falls in Sign of Slower Growth

German industrial output dropped for a third month in May amid signs Europe’s largest economy is taking a breather.

Production, adjusted for seasonal swings, fell 1.8 percent from April, when it declined a revised 0.3 percent, the Economy Ministry in Berlin said today. Economists forecast output to remain unchanged, according to the median of 35 estimates in a Bloomberg News survey. Production rose 1.3 percent in May from the previous year when adjusted for working days.

While Germany’s economic trend points “upward significantly,” growth probably slowed in the three months through June, the Bundesbank has said. Factory orders fell more than economists expected in May, Ifo business confidence dropped to a six-month low in June, and unemployment rose for a second month.

“There was a little dent in the second quarter,” said Jens-Oliver Niklasch, a fixed-income strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “But generally speaking, the German economy is in quite good shape and there’s no reason for concern as growth rates will remain solid.”

Manufacturing fell 1.6 percent, with intermediate-goods production (GRIPIMOM) dropping 3 percent and consumer-goods output down 3.5 percent, today’s report showed. Investment-goods production rose 0.3 percent and energy output was up 1 percent, while construction slumped 4.9 percent.

Geopolitical Tensions

The economy ministry said the decline in output was primarily due to the timing of the May 1 holiday and should only be temporary.

“Sentiment indicators and the overall economic fundamentals suggest the upswing in industrial production will continue in the course of the year after a weaker second quarter,” the ministry said in a statement.

While Germany remains the driving force for the euro-area’s yet-lackluster recovery, recent data suggest that tensions between Russia and Ukraine are weighing on confidence and business prospects. Investor confidence as measured by the ZEW research institute dropped for a sixth month in June to the lowest level since December 2012.

The 18-nation euro-area economy grew just 0.2 percent at the beginning of the year, compared with an expansion of 0.8 percent in Germany, and the European Central Bank has warned that a prolonged period of low inflation could hamper the recovery.

Policy makers left interest rates unchanged last week and unveiled details of a new lending program aimed at boosting credit supply. Last month, they cut the benchmark rate to a record-low 0.15 percent, took the deposit rate below zero and said they’d intensify work on a purchase plan for asset-backed securities.

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Jana Randow, Zoe Schneeweiss

Source:

www.bloomberg.com

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