Market Review – 17/08/2011 22:01 GMT
Dollar falls on increased risk appetite
The greenback weakened across the board on Wednesday as improved risk appetite prompted investors to buy higher-yielding currencies such as the Australian dollar and New Zealand dollar. The Swiss franc gained against dollar and euro as the Swiss National Bank reiterated that it would, if necessary, take further measures against its strength but did not show signs it would introduce a currency peg, however, the franc later retreated.
Versus the Japanese yen, although the greenback recovered to 76.83 in Australia, the pair ratcheted lower in Asian and European sessions and fell to its day low of 76.41 in NY morning. However, dollar rebounded to 76.61 on short-covering before stabilising around 76.50.
The single currency recovered from an Asian low of 1.4354 to 1.4417 on short-covering ahead of European open but euro later tanked to 1.4325 on cross selling of euro vs chf. However, renewed cross buying of euro vs yen and chf (eur/jpy rallied from 109.80 to 110.97 whilst eur/chf rebounded from 1.1225 to 1.1556) lifted the pair above Monday’s high of 1.4477 to 1.4518 in NY morning before retreating sharply to 1.4422.
The British pound traded sideways in Asian session before falling sharply to 1.6348 on worse-than-expected U.K. unemployment data and dovish Bank of England’s minutes. However, sterling later rallied strongly to as high as 1.6594 on cross buying of sterling vs euro (eur/gbp tanked from 0.8808 to 0.8700) before stabilising.
BoE August MPC minutes said ‘economic outlook had worsened over the past month and most felt risks to inflation had eased; monetary policy committee voted 9-0 (expected 7-2 vote) to keep rates at a record 0.5%; some members of MPC considered more QE, case not yet strong enough but QE may be needed if downside risks materialise.’
The U.K. ILO unemployment rate for June was 7.9% vs market consensus of 7.7% whilst July’s claimant count was 37.1K vs expectation of 20.0K.
The commodity currencies rallied on Wednesday on risk appetite as aud/usd and nzd/usd surged from 1.0433 to 1.0601 and from 0.8313 to 0.8425 respectively.
Data to be released on Thursday include:
Japan tankan manufacturing, trade balance, export y/y, import y/y, leading indicators, U.K. retail sales, U.S. CPI, core CPI, real earnings, jobless claims, existing home sales, leading indicators, Philadelphia Fed survey, Canada leading indicators, wholesale sales.