Market Review – 07/07/2011 20:03 GMT
Euro rallies broadly as ECB suspends collateral rules for Portugal
The single currency rose strongly on Thursday across the board after European Central Bank President Jean-Claude Trichet said the central bank decided to suspend the application of the minimum credit rating threshold in the collateral requirements for Portugal until further notice at the ECB press conference following interest rate announcement. The ECB raised its widely expected lending rate to 1.50% from 1.25% to tame inflation pressure.
ECB President Trichet also said that we did not decide that we would have a series of interest rate increases and the further adjustment of the current accommodative monetary policy stance is warranted in the light of upside risks to price stability.
Earlier in the day, renewed selling interest at 1.4347 pressured the single currency lower in Asia. Later, despite falling below previous session low of 1.4286 to 1.4277 in European morning and then to a day’s low of 1.4220 after Trichet started the press conference regarding data which showed some deceleration in growth, the euro then rallied across the board in New York morning and price eventually climbed to as high as 1.4375 before retreating on profit-taking. Eur/jpy, eur/gbp and eur/chf jumped from 115.54 to 116.80, 0.8905 to 0.8995 and 1.1977 to 1.2144 respectively.
The British pound fell against the dollar on active cross selling in sterling versus the euro due to the widening interest rate differential prospect. Although cable staged a minor recovery from the day’s low of 1.5944 in European morning, price then retreated after meeting renewed selling interest at 1.6018 and the pound was confined inside the aforesaid intra-day range for the rest of the day despite euro’s rally in New York morning.
The Bank of England kept key UK interest rate at a record low of 0.50% and maintained QE total at 200 billion sterling. Cable showed little reaction after the BoE rate decision.
The dollar rallied against the Japanese yen and the Swiss franc after the release of much better-than-expected U.S. June ADP employment change which came in 157K vs economists’ forecast of 70K and the upwardly revised 36K in May. Usd/jpy rose above last week’s high of 81.27 to 81.41 from around 81.10/15 while usd/chf strengthened briefly from 0.8440/45 to as high as 0.8495 before retreating on profit-taking.
Data to be released on Friday include:
Japan Current account and Economic watch DI, Germany Trade data, U.K. PPI data, Canada Unemployment rate and Employment change, and US non-farm payroll, private payrolls, average hourly earnings, unemployment rate and wholesale inventories.