Market Review – 23/09/2010 23:07 GMTEuro falls on worries over eurozone’s economic recovery
Euro weakened from a 5-month high against dollar on Thursday, as worries about the growth of European economy resurfaced after the release of weak Irish, German and eurozone economic data.
The single currency traded sideways in Asia after Wednesday’s rally to a 5-month high of 1.3441, but then tumbled from 1.3415 to 1.3308 in Europe after the release of a surprise 1.2% fall in the Q2 of Irish GDP from the Q1 as well as a rise to a record high of 500 basis points of 5-year Irish credit default swap. The widening of Irish/German 10-year bond spread to a record high of 426 basis points added further pressure on the single currency. Later, despite euro’s brief recovery after the release of worse-than-expected U.S. weekly jobless claims (which came in at 465K versus the forecast of 450K), selling interest emerged again and sent the pair to an intra-day low of 1.3304 in NY morning before recovering.
The single currency was pressured after the release of weaker-than-expected German and EU service and manufacturing PMI data, as German services and manufacturing PMI came in at 54.6 and 55.3 versus the expectations of 57.0 and 57.6 while EU services and manufacturing PMI were both 53.6 versus the forecast of 55.5 and 54.5.
The Portuguese 5-year CDS increased by 29 basis points to 420 basis points, which also add pressure to the single currency.
In other news, reports showed that Irish and some other Ireland-based banks remained shut out of capital markets, forcing them to rely on emergency funding from the ECB and Ireland-based banks got 95 billion euros (US$125 billion) of cash from ECB in August.
Although the greenback edged higher versus the Japanese yen in Asia after Wednesday’s sharp fall to a 1-week post intervention low of 84.27 as Japanese market was closed for holiday and rose to an intra-day high of 84.68 in European morning, dollar dropped from there on cross-buying of yen especially versus euro (eur/jpy dropped from 113.43 to 112.18). The greenback extended its decline after the release of higher-than-expected U.S. weekly jobless claims and hit an intra-day low of 84.26 in NY morning before trading narrowly.
Earlier in Asia, Japanese Prime Minister Naoto Kan said he was determined to shore up a fragile economic recovery as evidenced by a big push to weaken the Japanese yen.
In other news, according to a senior U.S. official, U.S. President Obama said in the meeting with Chinese Premier Wen Jiabao that China needed to do more to resolve a dispute over the value of yuan. Earlier, Wen said there was no relation between the yuan and U.S. trade deficit.
Although the British pound edged higher in Asia and rose to 1.5688 in European morning, cable dropped in tandem with euro to an intra-day low of 1.5612 in Europe. Cable then staged a rebound from there and rallied above last week’s high of 1.5730 to 1.5742 on cross unwinding in sterling versus euro(eur/gbp tanked from 0.8567 to 0.8472) before retreating.
Economic data to be released on Friday include:
Germany Import price index, Ifo index , Swiss SNB quarterly bulletin, U.S. Durable goods, ex. Defense, ex. Transport , New home sales, New homes change.