Market Review – 09/06/2011 21:34 GMT
Euro falls after ECB dampened expectations for further rate rise and renewed Greek debt uncertainty
The single currency tumbled against the greenback on Thursday after European Central Bank lowered inflation forecast next year, dampening speculation for further rate hike after July and news that European governments and the International Monetary Fund (IMF) might lend as much as an extra 45 billion euros to Greece under the latest three-year plan to avoid the euro area’s first sovereign default.
Earlier in the day, euro ratcheted higher to 1.4646 in early European trading on comments from Eurogroup Chief Jean-Claude Juncker who said ‘it is too soon to give a definite amount for a new aid package for Greece’ and eur/usd later jumped to 1.4655 on speculation of an interest rate hike in July shortly after the start of ECB’s press conference, however, offers quickly emerged there as ECB trimmed 2012’s inflation forecast from 2.4% to 2.3% and investors sold euro broadly, price tanked to as low as 1.4478 in New York morning before stabilising. Euro also weakened against Japanese yen, Swiss franc and British pound and the cross-pairs tumbled to as low as 115.93, 1.2191 and 0.8847 respectively.
European Central Bank President Jean-Claude Trichet said in the press conference after ECB kept benchmark refinancing rate unchanged at 1.25% that ‘monetary policy stance is still accommodative; strong vigilance warranted; we are not in favour of restructuring of Greek debt.’ Eurozone sources said ‘new bailout for Greece likely to total about 120 billion euros; new bailout may comprise 30 billion euros from private sector, 30 billion euros from privatisations, up to 60 billion euros from EU/IMF’.
Sterling ratcheted higher in Asian session and climbed briefly to an intra-day high of 1.6467 in European morning before retreating and the euro-led decline later pressured price sharply lower to a session low of 1.6358 in early New York trading. U.K. trade balance in April came in at -7.389 billion pounds versus economists’ forecast of -7.55 billion pounds. Bank of England held key interest rates at 0.5% as widely expected, making no change to quantitative easing total of 200 billion pounds and didn’t provide statement on monetary policy alongside June rate decision.
Buying interest on the greenback emerged partly due to weakness in European currencies and increased US 30-year bonds yields (the $13 billion auction of 30-year bonds drew a yield of 4.238%, compared with the average forecast of 4.216%; bid-to-cover ratio was 2.63, compared with an average of 2.65).
Usd/jpy and usd/chf rose from intra-day low of 79.84 and 0.8355 to session highs of 80.42 and 0.8446 in New York respectively.
On the data front, Japan Q1 GDP came in at -0.9% versus economists’ expectation of -0.8%. Australia unemployment rate in May came in at 4.9% as expected and employment change in May came in at 7,800 versus economists’ forecast of 25,000. U.S. trade balance in April came in at -US$43.68 billion versus economists’ expectation of -US$48.8 billion. U.S. Jobless claims came in at 427,000 versus economists’ forecast of 415,000.
Data to be released on Friday include:
Japan domestic CGPI; China exports, imports and trade balance; Germany CPI and HICP final and wholesale price index; U.K. industrial, manufacturing production, PPI input, output and core; Canada employment change and unemployment rate; U.S. export and import price index and Fed budget.