Market Review – 23/02/2011 20:08 GMT
Euro strengthens to a 3-week high on ECB rate hike outlook
Euro rose to a 3-week high on Wednesday on speculation that ECB may hike interest rates earlier than the Fed after recent hawkish comments fm ECB officials Yves Mersch n Lorenzo Bini Smaghi. The single currency extended Tuesday’s rise and ratcheted higher in Asia, intra-day upmove accelerated after the mixed U.S. existing home sales data. Price eventually pierced through 1.3745 (9 Feb) resistance n climbed to a 3-week high of 1.3787 in New York trading before retreating on profit-taking.
U.S. existing home sales rose by 2.7% to 5.36 mln unit annual rate in Jan. versus expectation of a drop of 2.1% to 5.24 mln unit annual rate. U.S. Jan National median price for existing home sales fell by 3.7% m/m to US$ 158,800, the lowest since April 2002.
The British pound was little changed on Wednesday. Although cable rallied in tandem with euro in Asian session n intra-day rise briefly extended to 1.6275 after the release of BoE minutes of the meeting held on 9 & 10 February, failure to penetrate previous resistance at 1.6279 (3 Feb.) prompted investors to take profit and price later retreated to 1.6180 in NY trading on cross selling in sterling esp. versus euro as eur/gbp pair strengthened fm 0.8422 to 0.8495.
The minutes of the BoE showed that Spencer Dale joined Andrew Sentance n Martin Weale to vote for a hike in Bank rate, Andrew Sentance preferred to increase by 50 points while Spencer Dale n Martin Weale preferred to increase by 25 basis points. The minutes also stated that only Adam Posen (Deputy Governor) was in favour of increasing the size of the asset purchase programme by 50 billion pounds to a total of 250 billion pounds.
The Swiss franc, the traditional safe-haven asset, rose to 2011 high of 0.9307 (6 pips shy of its lifetime high of 0.9301 made on December 31, 2010) against the dollar on Wednesday as the continued political violence in Libya drove U.S. oil surging to $100 per barrel, fanning concerns about inflation and its impact on the global economy.
Data to be released Thursday include:
Germany GDP, eurozone business climate, industrial, economic, consumer sentiment, U.K. CBI distribution trade, U.S. durable goods order, jobless claims, new home sales.