Market Review – 13/12/2010 21:25 GMT
Dollar tumbles on worries over US deficit
Dollar fell sharply across the board on Monday as Moody’s warned that US tax package increased likelihood of negative outlook on US AAA rating in 2 years and dollar was also pressured as Treasury yields fell, which dampened demand for US assets. Although the greenback rose against the Japanese yen from 83.75 and hit an intra-day high of 84.36 in Europe, the pair swiftly nose-dived from said high and tumbled to as low as 83.10 in late NY session before staging a recovery.
Moody’s said the prolonged tax-cut program, which was proposed by U.S. President Obama last week, could shift its outlook on the U.S. top credit rating. Moody’s added that tax package’s negative effects on government’s finance would be likely to outweigh positive effects of higher growth.
The single currency initially dipped to 1.3182 in Asia but later rebounded from there and rose sharply in NY session. Intra-day rally picked up more momentum after penetrating the 1.3283 level and the pair then surged to 1.3434 due to dollar’s broad-based decline. Euro was supported by speculation that the European Union would work towards a permanent fund for supporting troubled countries during the meeting this week.
The British pound fell to 1.5720 initially, however, cable managed to rebound strongly and hit 1.5888 on dollar’s weakness before stabilizing. On economic front, U.K. Rightmove House Prices index in Dec showed a 3% drop (m/m) following 3.2% decline in Nov, this was the biggest consecutive monthly fall since company’s index which began in 2002.
In other news, China released its inflation data on Saturday where the key CPI rose a hefty 5.1% in Nov vs Oct’s 4.4%, the fastest rise since July 08′, however, China didn’t lifted its interest rate and this boosted risk appetite. China was Australia’s largest trading partner and the Australian dollar rose versus the greenback on Monday from 0.9834 to 0.9985. Nzd/usd rose from 0.7460 to 0.7576 and usd/cad fell from 1.0109 to 1.0028 while gold climbed from 1380.60 to 1399.00 and silver rose from 28.45 to 29.66.
Economic indicators to be released on Tuesday include:
NZ retail sales, Australia’s business confidence, UK CPI and RPI, Germany ZEW, US PPI, Retail sales and Fed rate decision.