Market Review – 25/09/2010 02:38 GMTEuro rallies to its highest level versus usd since April after strong German Ifo index
The single currency surged to the highest level since April against dollar on Friday as an unexpected rise in German Ifo business confidence survey boosted investors’ confidence on the future of European economy whilst disappointing U.S. data later added speculation that U.S. Fed would ease its monetary policy in the future, dampening demand for dollar. Traders sold the greenback across the board in European and U.S. sessions and the dollar index dropped over 1% to its lowest level since February.
Although the single currency extended Thursday’s decline from 1.3415 to 1.3286 at Asian opening, Asian sovereign demand lifted the pair. Despite euro’s brief drop to 1.3311 in reaction to suspected BOJ’s intervention in usd/jpy, euro later jumped in European morning session after the release of higher-than-expected German IFO survey while traders ignored peripheral debt concerns as Irish and Portuguese bond yield spreads versus the German bunds widened to their lifetime highs of 451 basis points and 430 basis points respectively. Euro eventually climbed to 1.3496 near NY closing on dollar’s broad based weakness. Eur/jpy and eur/chf also rallied from 112.31 to 113.78 and 1.3072 to 1.3295 respectively.
German Ifo business sentiment survey for September rose to 106.8, the highest level in more than three years, versus the expectations of 106.2. The data painted a bright future of European economy, giving support to the single currency.
In other news, Irish Finance Minister Brian Lenihan said the Irish economy was ‘not shrinking’ despite a fall in second quarter GDP but conceded that growth was sluggish this year. He also said ‘if fiscal targets need revision, will do so; he is concerned by yields in recent debt sales; no funding crisis in Ireland and there is concerted attack on eurozone.’
Versus the Japanese yen, the greenback traded narrowly in Asian morning and then rallied sharply but briefly to an intra-day high of 85.40 near the end of Tokyo lunch time on suspected BOJ’s intervention. However, dollar quickly relinquished its gain as Japanese top government spokesman Yoshito Sengoku, Chief Cabinet Secretary, said he would not comment on whether Tokyo intervened in the currency market, and dollar tumbled to an intra-day low of 84.12 in NY morning before trading narrowly.
On data front, U.S. durable goods order came in at -1.3% in September, weaker than the expectations of -1.0%. whilst U.S. new homes sales in August came in at 0.288M, versus the expectations of 0.290M, Aug new home sales fell to its 2nd lowest month on record. The data showed that the U.S. economy was still weak and reinforced the view that U.S. Fed is likely to offer another round of monetary easing to support the economy in the future.
Although cable extended Thursday’s retreat from 1.5742 to 1.5642 at European opening, sterling swiftly rallied in tandem with intra-day strong rise in euro on dollar’s broad base weakness and later penetrated said resistance and climbed to a 6-week high of 1.5843 in NY morning.
In global equity markets, U.S stocks rallied, the Dow made its fourth-straight weekly gain on Friday and closed up by 198 points or 1.86% at 10860. FTSE-100, CAC-40 and DAX rallied by 0.93%, 1.94% and 1.84% respectively.
Economic data to be released next week include:
U.K. Hometrack Housing, Japan CSPI, Trade balance (jpy), Export, Import, U.S. Chicago Fed Nat Act (Aug), Building permits, Midwest manufacturing on Monday, Germany Gfk index, CPI prelim , HICP prelim, U.K. GDP, Current account (gbp), CBI distribution trade , U.S. Consumer confidence on Tuesday, New Zealand Trade balance (nzd), Exports, Imports, Japan Tankan capex, Tankan big manufacturing, U.K. Mortgage Approvals, EU Business climate, Economic sentiment, Consumer Sentiment, Swiss KOF indicator, Canada PPI on Wednesday, U.K. Gfk survey , Japan Manufacturing PMI, Industrial prod’n, Retail sales, Construction orders, Housing starts, Germany Unemployment change, Unemployment rate, EU HICP flash, U.S. PCE, PCE core, GDP annualised, GDP deflator, Jobless claims, Chicago PMI, Canada GDP on Thursday, Japan Tokyo CPI, National CPI (core), National CPI, Unemployment rate, Household spending, Swiss Retail sales, PMI, Germany Retail sales, PMI manufacturing, EU PMI manufacturing, Unemployment rate, U.K. PMI manufacturing, U.S. Personal income, Personal spending, PCE core, U. Michigan survey, ISM manufacturing, Construction spending on Friday.
