Market Review – 30/11/2010 22:12 GMT
Euro falls to 10-week low against dollar on Irish contagion fears and China’s tightening
The single currency remained under pressure throughout Tuesday. Although euro staged a brief recovery to 1.3151 in Asia, the pair retreated and fell sharply to as low as 1.2969 before stabilizing.
Traders sold euro aggressively as the market focus remained on the development of eurozone debt crisis, geopolitical concerns on the Korean Peninsula and China’s tightening. Euro tumbled to 10-week low against dollar while eur/jpy sank to 11-week low as traders bought safe-haven currencies like usd and yen.
The single currency was pressured due to renewed risk aversion on speculation that PBOC may hike interest rates soon as China’s benchmark short-term money market rate jumped over 57 basis points to its highest level in more than two years. In other news, North Korea said it was operating ‘thousands’ of centrifuges at its uranium enrichment plant for peaceful use in its first detailed admission of its expanded nuclear capability. It was also reported that Japan told China now is not the time to hold 6-party talks on N. Korea.
Euro peripheral bond yields continued to rise, Irish/German and Spanish/German 10 year bond yield spread both widened to a fresh lifetime high. To add fuel to the fire, there was also market rumour ratings agency S & P might cut France’s outlook. In addition, the rating agency said it was placing Portugal’s A minus long-term and A-2 short term ratings on CreditWatch with negative implications.
The greenback edged lower against the Japanese yen from 84.30 and tumbled in European morning on heavy sales of eur/yen and despite staging a minor recovery from 83.72, renewed selling emerged below 83.90 pushed the pair lower and price eventually fell sharply to 83.42 before recovering.
On economic front, Chicago PMI came in at 62.5, the highest since April 2005. The data showed the business in the US expanded at a faster-than-expected pace in November. US Consumer Confidence also rose to 54.1 in November from 50.2 in October.
The British pound ratcheted lower to 1.5485 in tandem with euro but cable managed to stage a strong rebound to 1.5596 as supported by cross-buying in sterling (eur/gbp dropped from 0.8446 to 0.8341). In other news, UK’s Finance Minister Osborne said has taken steps to eliminate structural deficit in coming years and it’s in UK’s interest to have a stable Irish economy and believed the package would succeed.
Economic data to be released on Wednesday include:
Australia GDP, UK house prices, Swiss PMI, Germany Manufacturing PMI, EU Manufacturing PMI, UK Manufacturing PMI, US Manufacturing PMI and jobs data.