Market Review – 01/03/2011 20:21 GMT
Euro falls in NY as the rise in oil prices dents risk appetite
Euro fell on Tuesday as crude oil prices surged due to the supply disrupttions n more turmoil in the Middle East n North Africa, increasing demands for the dollar n the Japanese yen as safe-haven assets.
Despite the single currency’s brief rebound fm 1.3786 to 1.3855 in European morning on Tuesday, price then traded in a volatile manner in NY morning during Federal Reserve Chairman Ben Bernanke’s testimony to the Senate Banking Committee. Later, the single currency ratcheted lower to an intra-day low of 1.3762 in late NY trade as the intra-day decline in U.S. stocks accelerated on fears that high oil price would slow down global economic recovery. DJI tumbled 168 points or 1.38%.
The Fed Chief’s Bernanke, in his prepared remarks before the Senate, said downside risks to growth have declined n the risk of deflation was negligible. He added that the surge in oil n other commodity prices probably won’t cause a permanent increase in broader inflation n repeated that borrowing costs are likely to stay low. He later added that ‘don’t expect big impact on interest rates when Fed ends easing program’.
The British pound retreated fm a 13-month high on Tuesday on profit-taking. Cable initially extended recent ascent to a 13-month high of 1.6330 in European morning after triggering stops abv 1.6300 option barrier, however, lack of strong follow through buying together with the dovish remarks on sterling fm Bank of England Governor Mervyn King prompted investors to take profit n the pound then fell to an intra-day low of 1.6251 in late NY session.
Bank of England Governor Mervyn King said in his testimony to Parliament’s Treasury Committee that increasing the benchmark interest rate to make a gesture in the fight against inflation would be self-defeating. He also said financial markets do not believe rate of price increase will persist; ‘inflation pressures are back to target by mid 2011 but will not show up in Y/Y measure until 2012’.
The Japanese yen also strengthened broadly on Tuesday as investors flock to the yen as a safe-haven asset. Usd/jpy, eur/jpy, aud/jpy n gbp/jpy fell fm 82.24 to 81.74, 113.73 to 112.76, 83.75 to 82.98 n 134.13 to 132.97.
Data to be released on Wednesday include:
Japan business capex, Australia GDP, Germany retail sales, U.K. construction PMI, eurozone PPI, U.S. ADP employment n Canada PPI.