Market Review – 05/10/2010 23:04 GMTEuro rallies to a eight-month high against dollar amid Fed easing speculationThe single currency surged to an 8-month high against dollar on Tuesday, as the quantitative easing from BOJ fueled the speculation that U.S. Fed would pump more money to stimulate the economy and boosted demands of high-yield currencies and commodities. The dollar index fell by more than 1% to an 8 1/2-low of 77.698 on dollar’s broad-based weakness.
Although the single currency dropped initially to 1.3637 in Asia after RBA kept interest rate unchanged, the pair rebounded from there on dollar’s broad-based weakness, as the quantitative easing from BOJ reinforced the speculation that U.S. Fed would start another round of asset purchases. Euro then penetrated Monday’s NZ high of 1.3809 and climbed to an 8-month high of 1.3860 in NY afternoon
BOJ cut its overnight call rate target to 0-0.1% versus previous 0.1% and said that Japanese economy was likely to be on moderate recovery trend but improvement moves were weakening. BOJ would keep zero rates until prices seen stabilising and would create fund to buy JGBS and other assets to push down long-term market rates and to narrow risk premium. BOJ said size of pool of funds for asset buying was likely to be around 35 trillion yens, less than the expectation of 40 trillion yens.
The greenback edged higher against the Japanese yen in Asian morning on short-covering and rallied above Monday’s high of 83.88 to 83.99 after BOJ cut its overnight call rate target. However, dollar retreated from there and tumbled to 82.96, the lowest since BOJ’s intervention, in NY morning on dollar’s broad-based weakness.
Although the British pound edged lower in Asia and dropped to 1.5750 in European morning, cable rebounded from there and rallied to 1.5914 in tandem with euro after the release of higher-than-expected U.K. September service PMI (which rose to 52.8, versus 51.3 in August but Q3 growth revealed this was at its lowest level since Q2 2009). Cable eventually climbed to a 2-month high of 1.5932 in NY morning before retreating.
The Australian dollar nose-dived from 0.9678 to 0.9541 after the Reserve Bank of Australia (RBA) kept its key cash rate steady at 4.5%. The RBA statement indicated that ‘information on the Australian economy shows growth around trend over the past year’. However, the Australian dollar pared its losses and rebounded strongly to 0.9737. Other commodities and high-yield currencies also rallied on Tuesday, as NZD/USD surged from 0.7357 to 0.7497 while usd/cad tanked from 1.0273 to 1.0154. Spot gold also rallied from 1312.80 to a fresh record high of 1340.70.
The Dow Jones Index rallied on Tuesday and closed the day up by 193 points, or 1.80% at 10945. FTSE-100, CAC-40 and DAX surged by 1.44%, 2.25% and 1.33% respectively.
Economic data to be released on Wednesday include:
U.K. BRC Shop Price Index, Halifax house prices , EU GDP, Germany Factory orders, U.S. ADP employment, Canada Ivey PMI.
