Market Review – 13/04/2011 20:40 GMT
Euro retreats from 15-month high as President Barack Obama plans to cut U.S. budget deficit
The single currency retreated from a fresh 15-month high on Wednesday due to lingering concerns over Greek debt together with Obama’s deficit cut.
Obama set a time-frame of 12 years or less to reach the goal of cutting the U.S. budget deficit by $4 trillion and called for talks with Democratic and Republican lawmakers to lay out a detailed blueprint. He also warned that steadily rising debt could cost jobs and harm the economy and force the country to borrow more and more from other countries such as China.
Although the euro extended recent ascent to a fresh 15-month high of 1.4521 in European midday after ECB Governing Council member Luc Coene’s hawkish remarks, price then retreated following German newspaper report that Greece must wipe away 40-50% of its debt burden in order to return to a sustainable economic path. The single currency then dropped briefly to a day’s low of 1.4414 in late New York trading after Obama’s dollar-positive budget deficit cut plan. Cross-selling in the single currency also weighed on the euro as eur/jpy, eur/gbp and eur/chf fell sharply from 122.16 to 120.78, from 0.8924 to 0.8871 and from 1.3044 to 1.2917 respectively.
In the other news, German Finance Minister Wolfgang Schaeuble said in an interview with Die Welt newspaper that any Greek debt restructuring would have to happen on a voluntary basis if done before 2013. His remarks also pressured the euro in late New York trading.
ECB Governing Council member Luc Coene was quoted as saying that the European Central Bank’s increase of interest rates last week should not be considered as an isolated decision and the ECB president has signalled that it was not a one-off.
The British pound was little changed as price was confined inside previous session’s 1.6227-1.6330 range. Despite ratcheting higher to 1.6302 in European morning, cable later retreated sharply to a day’s low of 1.6236 but buying interest there lifted price to 1.6310 in New York morning before retreating in tandem with the euro in late New York trading.
Fed’s beige book stated that U.S. economy continued to improve since last report in early March. Many districts described improvements as only moderate, but gains were widespread across sectors. It also stated that wage pressures are mostly seen as weak or subdued, but higher commodity costs put increasing pressures on prices. Consumer spending also picked up modestly, but some districts reported weaker retail sales.
U.K. February unemployment rate came in at 7.8%, better than the forecast of 8.0%. U.K. March claimant count rose by 700, versus the expectations of a fall of 4,200 and the revised 8,500 fall in February.
Data to be released on Thursday include:
Swiss ZEW index; U.K. Nationwide Consumer Confidence; U.S. jobless claims and PPI.