Market Review – 20/03/2010 01:03GMT
Dollar and yen rally on broad-based risk aversion
The dollar and Japanese yen rose against most major currencies on Friday as rift between EU and Greece over the Greek aid and a surprise rate hike by India central bank, the first time since 2005, spooked investors, prompting a broad-based purchase of U.S. dollar and the yen, then later, Dow Jones Industrial Average fell for the first time in nine days and this further dampened demand for risky assets which were linked to growth, spot gold fell by as much $26 and oil dropped 2% in New York trading.
Earlier in Asia, the lingering Greek debt issue continued to haunt the single currency. Greek official claimed that they cannot afford to borrow money from the open market because of high interest rate. Whether Greece could obtain financial help from the European Union remained uncertain and they might need to turn to IMF for financial help. The single currency traded sideways in Asian morning inside a range of 1.3605 to 1.3627 before resuming this week’s decline fm 1.3819. Deterioration in investors’ sentiment on Greece and speculation on a Fed rate hike pressured the single currency in Europe and price tumbled below support area at 1.3530/51 to 1.3503 (lowest level in more than two weeks) in NY morning as huge stops were triggered before stabilizing.
Although the Japanese yen traded sideways against the greenback, active unwinding in yen carry trade for risk aversion and later a retreat in the Dow helped yen rally against other currencies, eur/jpy fell fm 123.25 to 122.26, gbp/jpy tumbled fm 138.08 to 135.66 and aud/jpy weakened fm 83.51 to 82.68.
Similar to euro, the British pound traded narrowly in Asian morning inside range of 1.5233 – 1.5256. However, comments from Bank of England’s policy maker Andrew Sentance who warned that ‘Britain may suffer a double-dip recession although that is not the most likely but it’s not the central forecast’ in an interview with CNBC television dragged the sterling lower. Sentance also warned that it is not the job of the central bank to fine-tune fiscal policy and called for ‘significant’ budgetary tightening as economic recovery gains momentum. Cable fell sharply in Europe after his comments and sterling bears continued to bash cable in NY, price tumbled to an intra-day low of 1.4989 in NY morning before stabilizing.
The Swiss franc rose against the single currency for the sixth day, its longest rise since December 2008 on speculation the central bank is abandoning the policy of curbing the currency’s appreciation. Eur/chf fell to 1.4318 in European morning before rebound in NY on profit-taking. The Swiss franc climbed as much as 0.6 percent versus the euro, and rose 1.4 percent in the week, the most in almost 15 months.
Economic data to be released on next week include: Swiss PPI, E.U. employment change, US manufacturing index, industrial production, capacity utilization and housing market index on Monday, Japan BOJ releases minutes, U.K. CPI, RPI, Canada leading indicators, U.S. existing home sales and housing price on Tuesday, New Zealand current account, Japan export, import, trade balance, Germany manufacturing PMI, service PMI, info index, E.U. manufacturing PMI, service PMI, industrial orders, U.K. distribution trade, U.S. durable goods , new home sales and building permits on Wednesday, Japan CSPI, Australia release financial report, Germany Gfk index, U.K. retail sales and U.S. jobless claims on Thursday, New Zealand trade balance, Japan CPI, Germany import price index, U.S. PCE, GDP and University of Michigan survey (final) on Friday.