Market Review – 08/08/2011 22:03 GMT
Yen, Swiss franc surge on U.S. downgrade
The Japanese yen and the Swiss franc rallied against other currencies on Monday as the U.S. credit rating downgrade by Standard & Poor prompted investors to buy safe-haven currencies. The single currency tumbled by 300 points as the purchase of Spanish and Italian bonds by the ECB failed to alleviate worries about the spreading debt crisis.
Versus the yen, although the greenback opened lower in NZ to 77.60 on risk aversion after S&P downgraded the U.S. credit rating to AA+ fm AAA over the weekend, the pair bounced back to 78.47 on fears of BoJ intervention. However, price then ratcheted lower as no action was taken by the central bank and fell to 77.56 in European morning on active cross buying of yen vs other currencies. Despite the pair’s recovery to 77.92 in NY morning, renewed selling sent the dollar to 77.51 at NY midday before stabilising.
The greenback tumbled to a fresh lifetime low of 0.7480 versus the Swiss franc in NZ due to S&P’s downgrade. Despite recovering to 0.7651 in European morning, renewed selling pressured price to 0.7484 at NY midday. Eur/chf also breached 1.0710 to a fresh all-time low of 1.0620.
The single currency opened higher in NZ and climbed to an intra-day high of 1.4431 in Australia but price retreated to 1.4290 ahead of Asian open. Although the single currency ratcheted higher in Asian session and climbed back to 1.4402 in European morning on news the ECB was buying Spanish and Italian government bonds, the pair tanked to 1.4130 in NY morning on risk aversion as the impact of the ECB’s actions fizzled out. Despite euro’s recovery to 1.4250 on short-covering, renewed selling pressured the pair to 1.4168 ahead of NY closing. Active cross selling of euro also sent the single currency lower as eur/jpy and eur/gbp tumbled from 112.50 to 109.75 and from 0.8757 to 0.8663 respectively.
The single currency was pressured due to the selloff of global stock markets. DJI tumbled sharply by 634.76 points, or 5.55% and closed the day at 10809.85. FTSE-100, CAC-40 and DAX tanked by 3.39%, 4.46% and 5.02% respectively.
The British pound retreated from 1.6510 in tandem with the euro in Asian morning after the sharply higher open in NZ and dropped to 1.6301 at Asian midday before staging a recovery to 1.6472 in European morning. However, cable tumbled in tandem with euro to an intra-day low of 1.6297 due to risk aversion and also the selloff in global stock markets. Although sterling rebounded to 1.6379 in NY afternoon on short-covering, renewed selling sent the pair lower to 1.6315 near NY closing.
Data to be released on Tuesday include:
U.K. BRC retail sales, RICS house prices, Australia NAB business confidence, China CPI, PPI, industrial production, retail sales, urban fixed assets investment, Japan consumer confidence, machine tool orders, Swiss consumer confidence, Germany export, import, trade balance, current account, U.K. industrial production, manufacturing production, trade balance, Canada housing starts, U.S. Fed rate decision, Fed press conference. 