Market Review – 28/09/2010 23:09 GMTDollar drops versus yen and euro on speculation of Fed’s easingThe greenback weakened against the Japanese yen and euro on Tuesday, as the weak U.S. data reinforced the speculation that U.S. Fed would pump more money to stimulate the economy. The dollar index fell to 78.861, the lowest level since February, on dollar’s broad-based weakness.
The greenback edged lower from 84.35 against the Japanese yen in Asia on talks of repatriation flows ahead of the end of the first half of Japanese fiscal year on September 30 and dropped sharply in NY on dollar’s broad-based selloff after the release of weaker-than-expected U.S. consumer confidence. Dollar eventually hit an intra-day low of 83.68, the lowest level since BOJ’s intervention, in NY morning.
U.S consumer confidence in September came in at 48.5, weaker than the expectations of 52.5 and the downwardly revised of 53.2 in August.
In other news, Japanese Finance Minister Yoshihiko Noda said issuing new bonds for the planned supplementary budget was undesirable. He also said he expected China to steadily pursue flexibility in the yuan.
Although the single currency extended Monday’s decline from 1.3507 to 1.3427 in Asia on WSJ’s article of a smaller scale quantitative easing by the Fed, bids by Asian sovereign name lifted price to 1.3473 before tanking to as low as 1.3381 in European morning on renewed debt concerns over Ireland and Spain. However, euro staged a strong rebound after the comments from Yu Yongding, a former adviser to China’s central bank, as he said that ‘the U.S. dollar is one step nearer to a crisis and a devaluation in the currency may be inevitable.’ He also added he was concerned on the safety of China’s forex reserves, including those in U.S. government debts. The single currency then rallied further on dollar’s broad-based weakness after the release of weaker-than-expected U.S. consumer confidence and climbed to a fresh 5-month high of 1.3596 ahead of NY closing.
Euro was initially pressured on renewed concerns over the financial debt problems in Europe, as Spanish/German 10-year yield spread rose to 193 bps, highest since mid-July and Spanish CDS rose to 241 bps versus 227.5 bps at NY close on Monday. Irish 5-yr CDS hit a record high at 519 bps versus 488.5 bps at NY closing on Monday. Portuguese/German 10-year government bond yield spread hit euro lifetime high at 441 bps, up about 17 bps on day.
Earlier in European morning, the rating agency S&P reported that Ireland’s cost of Anglo Irish bank recapitalisation might exceed 35 billion euros which could trigger further rating downgrades and the news weighed on the single currency.
The British pound weakened from 1.5843 in tandem with euro in Asia and dropped to 1.5780 in European morning on dollar’s rebound against other European currencies. Later, although buying interest there lifted price to a 6-week high of 1.5896 after the release of upbeat U.K. GDP figures together with narrow-than-expected current account deficit, sterling tumbled to 1.5718 in NY morning due to the comments from BOE’s policymaker Adam Posen and then staged a strong recovery on dollar’s broad-based weakness in NY session. Eur/gbp rallied from 0.8468 to a 4-month high of 0.8606.
Bank of England policymaker Adam Posen said the central bank should re-start its asset-purchase program to prevent Britain falling into the same kind of slump Japan did in the 1990s.
U.K GDP in Q2 rose by 1.2% from the first quarter while current account balance in Q2 narrowed to -7.383 billion pounds, versus the forecast of -9.75 billion and -9.63 billion in Q1.
Earlier in Europe, sterling was supported by strong CBI retail sales volume, as U.K. CBI in September came in at 49, the highest level in over 6 years, versus the forecast of 25 and the previous reading of 35.
Economic data to be released on Wednesday include:
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.
