Market Review – 27/04/2011 20:53 GMT
Dollar tumbles as the Fed has no timetable when tightening of monetary policy will begin
The U.S. dollar fell across the broad on Wednesday as Federal Reserve Chairman Ben Bernanke said in his first ever post-Federal Open Market Committee (FOMC) press conference that he was unsure when the Fed would tighten its monetary policy. The dollar index, which tracks the greenback against a basket of currencies, sank to as low as 73.261, the lowest since August 2008.
Euro rose to a fresh 16-month high after Fed’s Chairman Bernanke’s dovish comments. Despite ratcheting lower from Asian high of 1.4715 to an intra-day low of 1.4631, the single currency then rebounded strongly following Fed’s rate decision and price rallied to as high as 1.4796 in late New York trading on dollar’s broad-based selloff.
Ben Bernanke was quoted as saying in the press conference that ‘economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually; increases in the prices of energy and other commodities have pushed up inflation in recent months but these effects to be transitory.’
The FOMC kept the Fed Fund rate in 0-0.25% range and reiterated that it would keep rates exceptionally low for an extended period. The Fed also stated that it ‘will complete purchases of US$600 billion of longer term treasuries by end of current quarter.’
The British pound also strengthened to a new 16-month high. Cable jumped from Asian low of 1.6435 to 1.6582 in European morning after the release of U.K. GDP data for the first quarter which came in at 0.5% q/q and 1.8% y/y as expected, hindering by a sharp drop in construction which fell by 4.7% on the quarter, its biggest drop since the first quarter of 2009. Despite ratcheting lower in New York morning, the pound than rallied to 1.6637 in tandem with the single currency in late New York session. Eur/gbp tanked from 0.8923 to 0.8846 before staging a strong rebound on short-covering.
Despite dollar’s initial resumption of recent decline versus the Japanese yen to 81.27 in Australia morning session, price then rebounded strongly after Standard & Poor’s downgraded Japan’s sovereign rating outlook to negative. The usd/jpy pair’s intra-day rally accelerated in European morning after triggering stops above 81.95/82.00 and price eventually climbed to as high as 82.82 in New York midday before falling back to 82.02/05 on dollar’s broad-based weakness.
Credit rating agency Standard & Poor’s cut Japan’s outlook to negative, affirming Japan’s sovereign rating at AA-. Another credit rating agency Moody’s also said that it maintained a negative outlook on Japan’s debt rating.
On the data front, U.S. durable goods rose by 2.5% in March versus economists’ forecast of 2.0% and previous reading of -0.6% in Feb. The durable goods excluding transportation and excluding defense were 1.3% and 2.3% respectively.
Data to be released on Thursday include:
New Zealand RBNZ rate decision; Japan manufacturing PMI, household spending, CPI, unemployment rate, industrial production, BOJ April rate decision and press conference, construction orders and housing starts; U.K. Gfk consumer confidence; Germany import price index and unemployment rate; U.S. GDP, GDP deflator, personal consumption expenditures (PCE) core Q/Q, jobless claims, personal consumption and pending home sales.