Market Review – 13/05/2011 20:12 GMT
U.S. dollar rallies on broad-based risk aversion on Friday
The single currency went through a roller-coaster session in volatile trading on Friday. Although euro weakened in Asian morning to 1.4185 as crude oil price retreated by 1%, buying interest by sovereign names at 1.4180-90 lifted price and euro rallied broadly versus usd, Japanese yen, sterling and Swiss franc at European opening after the release of stronger-than-expected German GDP data, however, the pair eased from 1.4340 on reports of heavy offers by a major Swiss name and retreated in European midday.
Despite staging a brief bounce back to 1.4307 in New York morning on short-covering after release of U.S. CPI data, renewed selling quickly emerged and pushed the pair lower partly due to the Standard & Poor’s report which said the ratings agency believed most Portuguese banks would need to take decisive actions to be able to comply with the new minimum core capital requirements by the Bank of Portugal. Euro’s decline accelerated and later tumbled near European closing, price easily penetrated Thursday’s near 6-month low of 1.4123 to as low as 1.4065 in New York midday on renewed concern that Greece would need to restructure its debts, intra-day decline U.S. stocks and commodity prices triggered a wave of risk aversion.
Cable rebounded initially from Asian morning low of 1.6240 to 1.6308 in Europe but sterling then fell broadly versus usd, yen and euro. Sterling was under pressure after the Institute for Fiscal Studies said U.K. living standards would fall as inflation outstripped income growth and government spending cuts crimped welfare payments. The pound later tanked in tandem with euro in NY trading and pierced through Thursday’s low of 1.6235 to 1.6147 before staging a minor recovery in New York afternoon.
The yen strengthened against most of its major counterparts, boosted by speculation that Tokyo Electric Power Co. was repatriating overseas funds to pay for damages and compensation in the wake of this year’s nuclear power-plant disaster. The eur/jpy, aud/jpy, and gbp/jpy fell sharply from 115.47 to 113.51, from 86.47 to 84.90 and from 131.59 to 130.30 respectively in New York midday after the release of U.S. CPI data and Standard & Poor’s report in New York morning.
The 3 commodity currencies aud/usd, nzd/usd and usd/cad also tumbled from 1.0708 to 1.0520, from 0.7945 to 0.7836 and 0.9605 to 0.9745 respectively whilst usd/cad rallied from 0.9610 to 0.9745 in New York midday due to broad-based dollar’s strength. Risk reduction on Friday also pressured gold and silver prices. Spot gold price tumbled from intra-day high of 1516.40 to as low as 1483.20 and spot silver price tumbled from as high as 36.43 to intra-day low of 33.96 in New York midday.
On the data front, German 2011 Q1 GDP came in at 1.5% q/q and 5.2% y/y versus economists’ expectations of 0.9% q/q and 4.2% y/y and previous reading of 0.4% q/q and seasonal adjusted of 3.8% y/y in Q4 2010. Eurozone 2011 Q1 GDP came in at 0.8% q/q and 2.5% y/y versus economists’ forecast of 0.6% q/q and 2.2% y/y and previous reading of 0.3% q/q and 2.0% y/y. U.S. consumer prices rose in April in line with economists’ forecasts. The M/M CPI excluding food and energy came in at 0.2% versus forecast of 0.2% whilst CPI M/M came in at 0.4%, exactly same as street forecast. University of Michigan (Sentiment) May survey Final came in at 72.4 versus economists’ forecast of 70.0 with previous reading of 69.8.
Data to be released next week include:
Japan domestic CGPI, machinery orders, consumer confidence; EU HICP final and trade balance; U.S. foreign treasury buys, net LT TIC flows and NAHB housing market index on Monday.
Australia RBA’s board May minutes; Japan machine tools orders; U.K. CPI, RPI and DCLG house prices; Germany ZEW index and ZEW current situation; U.S. housing starts, building permits, capacity utilisation and industrial production on Tuesday.
Japan Tankan manufacturing; U.K. claimant count, ILO unemployment rate, average earnings 3m and MPC vote; Canada leading indicators and wholesale sales on Wednesday.
Japan GDP, capacity utilisation and industrial production; U.K. retail sales; Swiss ZEW index; U.S. jobless claims, existing home sales, leading indicators and Philadelphia Fed survey on Thursday.
Japan BOJ rate decision; Germany PPI; EU current account; Canada CPI and retail sales; EU consumer sentiment on Friday.