Market Review – 07/06/2011 21:30 GMT
Euro rises on comments from Chinese FX official, Obama, Merkel and Bernanke
The single currency resumed recent upmove and rallied on Tuesday after comments from Chinese FX official who warned of risks in “excessive” holdings of U.S. dollars assets and U.S. dollar would continue to weaken against other major currencies. Euro rose strongly in Europe after the remarks and extended intra-day upmove from Asian low of 1.4564 to 1.4696 in New York afternoon.
Comments from U.S. President Barack Obama and German Chancellor Angela Merkel also supported the single currency in New York morning. The single currency briefly extended gains after comments from Federal Reserve Chairman Ben Bernanke who acknowledged a slowdown in the economy but the Fed offered no suggestion for further monetary stimulus to support growth.
Federal Reserve Chairman Ben Bernanke said ‘U.S. economy growing well-below potential, accommodative monetary policies are still needed; most Fed officials see recent inflation rise as transitory; best way for Fed to support U.S. dollar in medium term is to pursue dual mandate of maximum employment, price stability’.
U.S. President Barack Obama said ‘agree the debt crisis in Europe can’t be allowed to threaten the world’s economic recovery; confident that Germany’s leadership with other Eurozone members will help Greece return to growth, manage its debt’. German Chancellor Angela Merkel said ‘Eurozone share a common interest in ensuring the common currency bloc is not endangered; confident U.S. will shoulder its fiscal responsibilities just as Europe is shouldering its duties; euro stability influenced if a Eurozone member is in trouble, we will act to guarantee sustainability.’
Sterling was under pressure in Asian morning after the release of weaker-than-expected U.K. BRC retail sales and dropped briefly to 1.6324 before rising sharply to as high as 1.6474 in early European trading on improved risk appetite. Versus the Japanese yen, the British pound also rallied from session low of 130.90 to intra-day high of 132.08.
The Swiss franc weakened against the greenback after release of Swiss CPI data which dampened speculation that Swiss central bank would raise borrowing costs. Swiss CPI m/m and y/y in May came in at 0.0% and 0.4% as expected with previous readings of 0.1% and 0.3% respectively. Usd/chf rose sharply from a fresh lifetime low of 0.8327 in European morning to a session high of 0.8391 in New York morning before easing.
Aussie dipped after Reserve Bank of Australia kept overnight cash rate unchanged at 4.75%. Reserve Bank of Australia said global economy continued to expand and policy was appropriate. Aud/usd dropped sharply from Asian high of 1.0766 to as low as 1.0671 before European opening and recovery was seen later.
Versus the Japanese yen, the greenback dropped briefly below 80 level to re-test Monday’s low of 79.98 in New York afternoon after comments from Federal Reserve Chairman Ben Bernanke before moving sideways.
On the data front, UK halifax data showed U.K. home prices rose 0.1% in May (expectation was 0.2% rise) versus a 1.4% decline the previous month. U.K. BRC retail sales fell unexpectedly in May and dropped 2.1% versus street forecast of 2.25% increase and previous reading of 5.2%. Eurozone retail sales in April came in at 0.4% m/m and 0.9% y/y versus economists’ forecast of 0.4% and 0.0% respectively. German industrial orders m/m and y/y in April rose by 2.8% and 10.5% versus economists’ forecast of 2.0% increase and 9.0% increase respectively.
Data to be released on Wednesday include:
U.K. BRC shop price Index; Japan current account and economic watch DI; Swiss unemployment rate; Germany import and export, trade balance and industrial production; Eurozone GDP; Canada housing starts.