Market Review – 27/05/2011 21:11 GMT
Euro rallies on easing of euro zone debt concerns and broad-based dollar weakness
Euro rallied on Friday as euro zone debt concerns eased and the greenback weakened against its major counterparts after the release of much weaker-than-expected U.S. pending home sales.
The single currency initially jumped ahead of Asian opening and then climbed to 1.4278 in Tokyo lunch session due to active short-covering on speculation that U.S. economic growth was slowing before retreating strongly to 1.4184 in European morning on concerns over the Greek government’s ability to win support for severe austerity measures, however, active cross-buying in euro helped price stage a rebound and euro later ratcheted higher to a one-week high of 1.4325 near New York closing as comments out of Europe suggested Greece should be able to handle its heavy debt load, while the greenback’s broad-based weakness after the release of much weaker-than-expected U.S. April pending home sales (April figure plunged 11.6% versus economists’ forecast of a 1% drop) also supported the single currency.
The British pound continued to rally on Friday on speculation of rate hike after Bank of England Deputy Governor Paul Tucker expressed worries about inflation on Thursday, cable ratcheted higher to 1.6461 in European morning before easing on profit taking. The pound then ratcheted higher to two-week high of 1.6515 near New York closing after realease of much weaker-than-expected U.S. economic data.
The greenback and euro fell against the Swiss franc on Friday from 0.8662 and 1.2255 to a fresh record low of 0.8462 and 1.2100 respectively as strong reading of Swiss KOF indicator (May figure came in at 2.30 versus market’s forecast of 2.20) boosted speculation that Swiss interest rates would rise in the coming months.
Versus the Japanese yen, the greenback extended recent decline and tounched a session low of 80.70 in New York due to growing pessimism over U.S. economic outlook following the release of weaker-than-expected U.S. data.
European Central Bank Governing Council member George Provopoulos said ‘Greece will be able to repay debt in full without reprofiling if sticks to EU/IMF programme’. European Central Bank governing council member Nout Wellink said ‘he’s fully confident Greece will meet conditions to get IMF payment next month’. International Monetary Fund’s acting chief John Lipsky said ‘Greek loan program doesn’t contemplate debt restructuring’. At an emergency meeting, party sources said Greek political leaders failed to reach consensus on new, harsher austerity measures to pull the country out of its debt crisis and convinced skeptical investors could avoid default.
In other news, the group of eight leader agreed in G8 meeting held in France that the global economic recovery was becoming more self-sustained, but rising commodity prices was still a concern which was hampering further growth. The G8 communique stated Europe, U.S. and Japan all aimed for sustainable public finances. Italy Prime Minister Silvio Berlusconi also said G8 did not discuss issue of replacing Bini Smaghi on ECB board. And Obama said he wanted a strong euro but eurozone did not because it hurts exports.
On the data front, U.K. May GfK Consumer confidence came in at -21 versus economists’ expectation of -31. Japanese April national CPI and core national CPI came in at 0.3% and 0.6% respectively, same at economists’ forecasts. Eurozone May business climate, economic, industrial and consumer sentiment came in at 0.99, 105.5, 3.9 and -9.8 versus expectations of 1.20, 105.7, 5.1 and -12.0 respectively. U.S. April personal spending rose 0.4% after a revised 0.5% in March that was smaller than previously estimated. U.S. April personal income came in at 0.4% versus forecasts of 0.4%. U.S. April PCE index m/m and y/y came in at 0.3% and 2.2% repectively with April core PCE index m/m and y/y came in at 0.2% and 1.0% respectively. U.S. May University of Michigan survey final came in at 74.3 versus forecast of 72.4.
Data to be released next week include:
New Zealand April exports and imports and trade blaances; German retail sales; Canadian current account and GDP on Monday. U.K and U.S. markets will be closed on Monday.
Japan manufacturing PMI, household spending, unemployment rate, industrial production, construction orders and housing starts; Swiss GDP; German unemployment change and unemployment rate; Eurozone HICP flash and unemployment rate; U.S. Midwest manufacturing, SnP/CS home price, Chicago PMI and consumer confidence on Tuesday.
Swiss retail sales and PMI; German manufacturing PMI; Eurozone manufacturing PMI; U.K. manufacturing PMI, mortgage approval; U.S ADP employment, construction spending and ISM manufacturing on Wednesday.
U.K. PMI construction; U.S. jobless claims and durable goods (revised) on Thursday.
German services PMI; Eurozone services PMI; U.K. services PMI; U.S. average hourly earnings, non-farm payrolls, private payrolls, unemployment rate and ISM manufacturing on Friday.