Market Review – 07/12/2010 21:38 GMT
Dollar surges as Treasury yields rise sharply
The U.S. dollar strengthened broadly after a proposed extension of U.S. tax cuts sent the Treasury yields sharply higher on speculation that such tax cuts would boost the economy. The single currency pared all its initial gains and weakened against the dollar on Tuesday.
The greenback initially fell to 82.34 against the Japanese yen after earlier Reuters breaking news quoted China’s official newspaper China Securities Journal’s headline stating PBOC may raise interest rates as soon as this weekend, however, the pair rebounded from there and rose sharply higher to 83.66 in NY session on dollar’s broad-based strength.
U.S. President Obama reached an agreement with Republican leaders in Congress on a broad tax package, extending the Bush-era income tax cuts for two years. Prices of Treasury securities fell sharply while the corresponding yields rose strongly in delayed reaction to the news.
Euro edged lower in Asia and fell to 1.3277 but the single currency rebounded and hit an intra-day high of 1.3401 in NY morning on optimism that the Irish parliament could pass an austere budget that was required to qualify for the 85 billion-euro ($114 billion) package, however, euro later pared all of its early gains and turned negative on profit-taking together with dollar’s broad-based gain, reaching an intra-day low of 1.3257 ahead of NY closing.
In addition, Irish parliament passed the first in a series of resolutions underpinning the 2011 budget and marked the first step in a lengthy approval process. The lower chamber will vote on two further bills next week and the final bill will likely be voted in February.
Despite the British pound’s brief fall to 1.5705, cable subsequently rebounded and edge higher to 1.5823 before staging a pullback due to dollar’s broad-based gain.
Commodities weakened on Tuesday as spot gold once rose to record high of 1430.60 but price subsequently fell sharply to as low as 1397.70 while silver also tumbled from 30.65 to 28.48.
In other news, both RBA and the Bank of Canada kept interest rates unchanged as expected at 4.75% and 1.00% respectively.
Economic indicators to be released on Wednesday include:
Japan Trade Balance, Current Account, Machine Order n Economic Watch DI, Germany Trade Balance, Export n Import, Current Account, Industrial Production, U.K. CBI orders, Canada Housing starts.