Market Review – 23/08/2010 22:48 GMTEuro weakens on worries over eurozone economy
The single currency fell against dollar and the Japanese yen on Monday as investors worried over the strength of economic recovery in eurozone.
Although the single currency recovered to 1.2730 in Europe after last Friday’s selloff to 1.2664, euro then fell briefly but sharply below said low of 1.2664 to 1.2647 on cross selling in euro especially versus the Japanese yen (eur/jpy tumbled from 108.86 to a 7-week low of 107.65) in NY before staging a minor recovery on short-covering.
German services and manufacturing PMI came in at 58.5 and 58.2 versus the economists’ forecast of 56.3 and 60.5 respectively. Eurozone services and manufacturing PMI came at at 55.6 and 55.0 against the expectations of 55.5 and 56.2 respectively, both of the EU PMI data fell from the previous readings in July of 55.8 and 56.7, suggesting the eurozone recovery could have slowed down.
In other news, German government source said German cabinet would pass bank restructuring bill including bank charge plan on Wednesday. Bank charge would be limited to a maximum of 15% of annual earnings and would only be levied on banks headquartered in Germany but would not be tax deductible as a business expense.
The greenback slipped against the Japanese yen in Asia after last Friday’s cross-inspired rise to 85.82 and fell to 85.30 due to cross-buying in yen, as the much anticipated meeting between Prime Minister Kan and BoJ Shirakawa did not materialise and they did not talk about forex intervention. Later, despite dollar’s sideways trading in Europe, price fell again ahead of NY opening and touched an intra-day low of 85.09 before a recovery to 85.34 occur on short-covering in NY afternoon session.
In addition, Japanese Finance Minister Yoshihiko Noda said Japanese Prime Minister Naoto Kam would consider holding face-to-face meetings with Bank of Japan Governor Masaaki Shirakawa as needed. Noda told reporters he and Kan did not discuss the size of any economic stimulus steps the government might take.
Earlier in Asia, Japanese government spokesman Sengoku said Japanese Prime Minister and BOJ Governor talked over the phone in Asian morning and they agreed to work closely. He added that they also talked about forex, economy and still needed to consider if they should hold any meeting.
Although the British pound traded sideways in Asia after initial rise from 1.5510 to 1.5575, the pound gained strongly to an intra-day high of 1.5620 on active cross buying in sterling (eur/gbp fell to a near 8-week low of 0.8143), however, selling interest emerged there and cable edged lower to 1.5521 and then 1.5500 in NY before stabilising.
Earlier, Andrew Lilico, chief economist at the influential Policy Exchange think tank, warned of an interest rate environment not seen since the 1990s and said interest rates might rise to 8% within two years to choke off soaring inflation.
Economic data to be released on Tuesday include: Germany GDP, Imports, Exports, EU Industrial orders, Canada Retail sales, ex. Autos, U.S. Existing home sales.