Market Review – 21/07/2010 22:15 GMTEuro tumbles as Fed’s Bernanke shows concerns about economic outlook
Euro fell sharply on Wednesday as Fed’s Chairman Ben Bernanke showed concerns about the U.S. economy, prompting investors to flock to dollar and the Japanese yen as the safe-haven assets.
Euro traded narrowly in Asian session, the single currency rose to an intra-day high of 1.2914 at European morning but the pair retreated from there and fell to 1.2791 on lacklustre results from auctions of Portuguese debt sale, which triggered fears that Europe’s banks need to raise more capital. Later, the single currency tanked to an intra-day low of 1.2732 after Fed chairman Ben Bernanke’s dovish comments before recovering .
U.S. Fed’s Bernanke said in a testimony that economic outlook is ‘unusually uncertain’ and the Fed remains prepared to take further action as needed. He reiterated that economic conditions are likely to warrant exceptionally low rates for an extended period. He also said U.S. financial conditions have become less supportive of growth in recent months and the Fed will act if soft recovery falters.
Versus the Japanese yen, although the greenback dropped lower at Asian morning after the release of BoJ’s minutes and hit an intra-day low of 86.86 as the speculation of weak Europe’s stress-test results boosted demand for the Japanese yen, buying interest there lifted dollar up and the pair bounced to 87.35 on upbeat earning results from Morgan Stanley and Wells Fargo at NY morning. Later, the greenback fell again from there and hit a low of 86.91 on Bernanke’s dovish comments before stabilising
In other news, BoJ Deputy Governor Yamaguchi said he is watching forex moves carefully and yen rise impact on corporate mood depends on length and pace of yen rise. He also said that he has no comment on market speculation of forex intervention and forex policy is under jurisdiction of government, and business sentiment has improved significantly compared with during ‘Dubai Shock’.
Although the British pound edged higher to 1.5319 at European morning, cable then nose-dived to 1.5185 (or 1.5168 from Reuters) just ahead of London opening on U.K. Telegraph’s article that British banks may face 390 billion pounds ‘funding gap’ or talk of attribution of an erroneous electronic trade. However, renewed buying interest there lifted the pound up and it climbed to an intra-day high of 1.5335 ahead of the release of BoE’s minutes. Later, the British pound fell lower in Europe as the BoE’s minutes showed that the policy makers considered to expand stimulus policies to secure the U.K. economic recovery, and price tumbled to a low of 1.5125 after Ben Bernanke’s dovish comments at NY afternoon before stabilising.
The BoE’s minutes in June indicated that MPC voted 7-1 to keep rates unchanged and BoE would maintain its bond purchase program.
Telegraph reported U.K. Banks face a funding crunch next year as they attempt to refinance debt amounting to double the amount they had raised on average during the years of the credit boom.
Economic data to be released on Thursday include: Australia NAB business confidence, Japan All industry index, Germany PMI manufacturing and PMI service, EU PMI manufacturing, PMI service, Industrial orders and Consumer Confidence, U.K. Retail sales, Canada Retail sales, U.S. Jobless claims, Leading indicators, Existing home sales and House price index.
