Market Review – 08/06/2011 21:36 GMT
The single currency falls on fears over global growth
Euro fell on Wednesday due to recent weak U.S. economic data and weaker-than-expected German economic data, dampening investors’ demand for risky assets.
The single currency retreated from Australian high of 1.4695, just shy of Tuesday’s one-month peak of 1.4696 and ratcheted lower in European session after German Finance Minister Wolfgang Schaeuble said in letter to European Central Bank, International Monetary Fund and Euro partners that ‘wants “qualified and substantial” contribution of bondholders to any additional Greek debt relief’ and the release of weaker-than-expected German industrial production in April, the pair touched a session low of 1.4565 in late New York afternoon on concern over Greek debt crisis partly due to news from German newspaper Handelsblatt which said ‘German Finance Minister Wolfgang Schaeuble tells coalition members of parliament that Greece needs at least additional 90 billion euros through 2014’.
Sterling also weakened against the greenback in European session after an analyst from Moody’s gave warning on UK’s sovereign rating. Moody’s confirmed stable outlook for UK’s AAA rating and might reconsider if growth lower and fiscal plans slipped. Moody’s analyst Sarah Carlson said in an interview with news agency Market News International that Britain’s weaker growth prospects this year and next did not alone cast doubt on the UK’s sovereign rating.
Despite the British pound’s recovery fm Asian low of 1.6406 to around 1.6438 in European morning, cable tumbled to 1.6355 after the news n then price ratcheted to a day’s low of 1.6348 in New York morning before staging a strong short-covering rebound due to active cross-buying in sterling (especially versus euro). Eur/gbp pared all of its intra-day gains and dropped from session high of 0.8976 to as low as 0.8885 in late New York trading.
Versus the Japanese yen, the greenback fell to 79.75 in Asian morning, caused by a wave of heavy broad-based buying of Japanese yen and on comments from New York Fed president William Dudley who said at an event in New York that ‘U.S. recovery remains “distinctly subpar” despite aggressive monetary, fiscal stimulus’, however, buying interest there lifted price to 80.17 in Tokyo lunch session before dropping below 80 level to one-month low of 79.70 as concerns over U.S. economic growth dampened investors’ demand for risky assets. Eur/jpy, gbp/jpy and aud/jpy tumbled sharply from 117.85, 85.97 and 131.94 to 116.30, 84.43 and 130.50 respectively.
Commodity currencies were under pressured on increased risk aversion. Aud/usd tumbled from 1.0724 to as low as 1.0588 whilst usd/cad rebounded from 0.9740 to 0.9821. Earlier in the day, nzd/usd also retreated from 0.8214 to 0.8142 before rising sharply to 0.8220 at Australian opening shortly after the Reserve Bank of New Zealand left rates on hold as expected and said rate rises would be needed over the next two years to contain inflation.
In other news, Fitch ratings said ‘agreement will ultimately be reached on raising U.S. debt ceiling; failure to raise the debt ceiling in a timely manner would imply a crisis of governance that could imperil the U.S. ‘AAA’ status; unlikely that U.S. AAA status would be retained in the short to medium term after default’.
U.S. Fed Beige Book said ‘some deceleration in U.S. growth seen in May though economic activity generally continued to expand.’St. Louis Federal Reserve Bank President James Bullard said ‘U.S. fiscal situation biggest risk to world economy; U.S. debt default could turn into ‘global macro shock’; U.S. economy not weak enough to warrant further Fed stimulus; sees Fed on hold after end of QE2′.
On the data front, Japanese May Economic Watchers’ Survey came in at 36.0 versus economists’ forecast of 33.0 and 28.3 in April. German import and export m/m in April came in at -2.5% and -5.5% versus economists’ forecast of -1.0% and -3.0% respectively. Eurozone revised Q1 GDP came in at 0.8% m/m and 2.5% y/y versus preliminary reading of 0.8% m/m and 2.5% y/y. German April industrial output dropped by 0.6% m/m versus the economists’ forecast of 0.0% m/m and revised reading of 1.2% m/m in March. Canada housing starts in May came in at 183,600 versus economists’ expectation of 183,000.
Data to be released on Thursday include:
New Zealand RBNZ rate decision; Japan GDP, GDP deflator, consumer confidence and machine tools orders; Australia unemployment rate and employment change; U.K. trade balance, BOE rate decision and BOE asset purchase target; Eurozone ECB rate decision; Canada new housing price index, import and export and trade balance; U.S. trade balance, jobless claims and wholesale inventories.