Market Review – 25/05/2011 20:46 GMT
Euro pares intra-day losses on hawkish comments from ECB members
The single currency pared intra-day losses against the dollar on Wednesday after hawkish comments from European Central Bank (ECB) Executive Board member and Governing Council members. ECB Executive Board member Juergen Stark said ‘ready to raise rates again if needed; there is less need for fiscal and monetary policy accommodation; we assume that the underlying momentum of the economic growth will continue’.
Stark also said ‘Europe has learned its lesson from the past: under no circumstances will there be monetization of government debt in the euro area.’ ECB Governing Council member Yves Mersch said ‘amid the rules of the treaty, the clear mandate of the ECB, and its institutional independence, the monetization of public debt in the euro area is out of question.’ ECB Governing Council member Jens Weidmann said ‘worried that higher commodity prices can lead to second-round effects; we are concerned about inflation expectations; ECB monetary policy is still expansionary, have to normalise interest rates, non-standard measures.’
During the day, despite euro’s initial selloff from Australian high of 1.4106 to 1.4011 in European morning, speculation on interest rate hike limited intra-day losses there and price later ratcheted higher in New York trading to a session high of 1.4118 before easing briefly to around 1.4080 near New York closing.
The British pound strengthened across the board on Wednesday after data showed that U.K. exports helped the economy resume growth in the first quarter (exports rose 3.7% in the first quarter and net trade added a record 1.7% to GDP growth). Cable extended rise from Tuesday’s low of 1.6055 to as high as 1.6294 near European closing, while eur/gbp tumbled from intra-day high of 0.8716 to as low as 0.8632 and gbp/jpy rallied from intra-day low of 132.11 to as high as 133.70.
The greenback traded sideways versus the Japanese yen on Wednesday and gyrated inside intra-day range of 81.80 – 82.17, closed around 81.95 near New York closing. Earlier in the day, Bank of Japan released minutes for April 28 meeting and stated that members agreed in the meeting that needed to focus on downside economic risks. Bank of Japan Governor Masaaki Shirakawa said ‘need to watch for demand-driven downside risks to economy; Bank of Japan focusing on downside risks to economy in guiding policy for time being.’
The Swiss franc strengthened against the greenback and euro on Greece’s debt crisis concern. Usd/chf dropped from intra-day high of 0.8814 to as low as 0.8710 while eur/chf extended long-term downtrend to a fresh lifetime low of 1.2270 in New York morning before stabilising.
On the data front, U.K. Q1 preliminary GDP came in at 0.5% q/q and 1.8% y/y which met economists’ estimate and same as the figure on last release. U.S. April durable goods orders decreased 3.6% versus economists’ forecast of -2.2% and 4.4% rise in March. U.S. April durable goods orders excluding transportation decreased 1.5% and defense fell 3.6%. U.S. March monthly home price m/m came in at -0.3% versus -1.5% in February. U.S. March monthly home price y/y came in at -5.8% versus -5.7% in February.
Data to be released on Thursday include:
Japan Corporate Service Price Index (CSPI); German import price index; Swiss trade balance and payroll; U.S. GDP, GDP deflator, PCE core and jobless claims.