Market Review – 21/09/2010 23:00 GMTUS dollar falls broadly as Fed offers to ease
The greenback dropped against other major currencies on Tuesday, as the statement of U.S. FOMC meeting indicated that U.S. Fed prepared to ease monetary policy if needed to boost the U.S. economy.
The greenback edged lower from 85.77 in Asia on speculation that Japan might be blamed on manipulation of the Japanese yen and dropped to 85.26 in European morning. Later, despite dollar’s rebound to 85.66 on talk of good bids by a Scandi buyer, dollar fell again from there and extended its weakness to 84.97 in NY afternoon after the release of the statement of U.S. Fed’s FOMC meeting.
The Fed’s statement indicated vote on policy was 8-1 with Thomas M. Hoening dissenting. U.S. Fed said it prepared to provide additional accommodation if needed to support economic recovery. The Fed kept rates exceptionally low in 0-0.25 percent range for an extended period of time.
In other news, Chairman of the Japanese Bankers Association, Masayuki Oku, said the new Basel III regulations requiring banks to hold 7% in top quality capital are ‘harsh’ although Japan’s banks have no need now to strengthen their capital further.
The single currency rose from 1.3057 in Asia due partly to cross buying in euro (eur/chf rallied from 1.3116 to 1.3244.) and surged to 1.3149 in European morning in anticipation of good demand at the Irish bond auction. Euro then retreated from there on profit-taking despite solid demand at the Irish debt auction and dipped to 1.3108 after the release of stronger-than-expected U.S. housing starts figure. Later, although fell briefly to 1.3109 after U.S. Fed’s rate decision, the pair rebounded strongly on dollar’s broad-based weakness and rallied to a 6-week high of 1.3288 in NY afternoon.
Ireland sold 1.5 billion euros of government bonds, showing strong support from investors. Greece also sold 390 million euros of 3-month T-bills while Spain sold 7 billion euros of 12-month and 18-month bills, the top end target it had set.
U.S. housing starts rose by 10.2% to 0.569M in August, much stronger than the downwardly revised reading of a increase of 0.4% in July.
Earlier, ECB Governing Council member Nout Wellink said he would reconsider exit plans if they are afraid of negative impact; he saw no immediate threat of inflation in eurozone, the only threat for inflation would come from commodity prices.’
Although the British pound ratcheted higher to 1.5588 in Asia on short-covering following Monday’s selloff from 1.5686 to 1.5536, cable fell briefly but sharply to 1.5503 in European morning on cross selling in sterling versus euro (eur/gbp rallied from 0.8390 to 0.8493/94) before staging a rebound to 1.5570 in NY morning. Later, the British pound rallied from 1.5531 on dollar’s broad-based weakness after U.S. Fed’s rate decision and climbed to an intra-day high of 1.5645 in NY afternoon.
On data front, U.K. public sector net borrowing rose to a record high of 15.3 billion pound in August, much higher-than-expected of 12.51 billion due to hefty interest payment on gilts.
Economic data to be released on Wednesday include:
New Zealand Current account, Australia Westpac leading economic, Japan All industry index, U.K. BOE meeting minutes, EU Industrial orders, Consumer Confidence, Canada Leading indicators, Retail sales, ex. Autos, U.S. Home Price Index.
