Market Review – 14/07/2011 21:40 GMT
Dollar gains as Fed’s Bernanke rejects immediate stimulus
The greenback pared previous sessions’ losses and recovered against its major counterparts on Thursday as Fed Reserve Chairman Ben Bernanke said Fed was not ready to add more stimulus measures, dampening market expectations of another round of monetary easing.
Fed Reserve Chairman Ben Bernanke said in his second day of testimony before the Congress that ‘situation somewhat different than when QE2 was launched, policy still very accommodative; inflation is higher now than late last year, not yet ready to take action.’
Although the single currency rose briefly but sharply to 1.4282 in Australia after Moody’s placed the U.S. Aaa rating on review for a possible downgrade in Wednesday’s thin Australian morning session, euro pared its intra-day gain in Asia and fell to 1.4168 in European morning, the pair rebounded to 1.4258 before retreating after the Italian auction. Later, euro dropped again from 1.4249 on Bernanke’s dollar-positive comments and weakened to an intra-day low at 1.4115 in NY afternoon.
Italy sold 4.94 billion euros of the bonds vs its maximum target of 5 billion euros. The treasury needed to pay gross yields of 4.93%, the highest since June 2008 and up from 3.9% in the last auction a month again, and 5.9% respectively to issue new 5-yr and 15-yr debt. Later, in NY morning, Italy’s Senate approved austerity measure in confidence vote.
Versus the Japanese yen, the dollar fell to 78.45 against the Japanese yen in Tokyo morning on dollar’s broad-based selling after Moody’s warning on U.S. debt rating. However, price jumped briefly but sharply to 79.60 ahead of European opening due to strong bids from a U.S. bank but dropped swiftly to 78.88 on renewed cross buying in yen especially vs euro. The pair then edged higher to 79.27 in NY morning after Bernanke’s dollar-positive comments before stabilising.
Despite cable’s brief breach of Wednesday’s NY high of 1.6121 to 1.6195 in Australia on dollar’s weakness, the British pound ratcheted lower in tandem with euro and weakened to 1.6095 in European morning. Later, sterling fell from 1.6159 to 1.6105 after Bernanke’s comments before staging a recovery to 1.6161 in NY afternoon on active cross buying of gbp vs euro.
Spot gold breached $1586.80 to a fresh record high of $1593.00 whilst the New Zealand dollar climbed to 0.8507, the highest since it was freely floated in 1985 after the release of GDP data (0.8% m/m and 1.4% y/y vs forecasts of 0.3% m/m and 0.5% y/y).
On the data front, U.S. jobless claims fell to 405,000, less than economists’ forecast of 415,000 from upwardly revised 427,000 prior week. U.S. retail sales rose by 0.1% in June against the consensus forecast of a decrease of 0.1% prev. upwardly revised reading of -0.1 (prev. -0.2%).
Data to be released on Friday include:
EU Trade balance (euro), U.S. CPI, CPI core, Real earnings, Empire state mfg , Capacity utilisation, Industrial prod’n, U. Michigan survey Prel.