Market Review – 23/08/2011 21:56 GMT
Dollar falls on hopes of further monetary easing from Fed
The greenback dropped against most of its major counterparts on Tuesday as weak U.S. data fuelled speculation that U.S. Federal Reserve Chairman Ben Bernanke will signal further easing of monetary policy to boost the fragile economy at the Fed’s annual symposium in Jackson Hole, Wyoming. The single currency pared its early gains due to the euro-negative comments from former Federal Reserve Chairman Alan Greenspan.
Versus the Japanese yen, although the greenback rose initially to 76.93 in Australian morning, the pair ratcheted lower in European session on dollar’s broad-based weakness and dropped to 76.48 in NY morning after the release of weak U.S. data before staging a recovery to 76.74 in NY afternoon.
U.S. New home sales in July fell 0.7% from 0.312M to 0.298M, the slowest pace since February, vs market forecast of 0.310M. The U.S. Richmond Federal Reserve Manufacturing index came in at -10, weaker than forecast of -5 and the previous reading of -1.
The single currency edged higher from Australian low at 1.4355 to 1.4391 in Asia after the release of better-than-expected Chinese PMI (49.8 vs previous 48.9) and then rallied to 1.4500 in European morning as German manufacturing PMI data also beat expectations (52.0 vs forecast of 50.8). However, euro retreated sharply to 1.4376 on comments by former Federal Reserve Chairman Alan Greenspan who said the euro is “breaking down” before recovering to 1.4447 in NY afternoon due to cross buying of euro vs other currencies.
The British pound ratcheted higher from Australian low at 1.6453 due to better-than-expected Chinese data and surged in European morning in tandem with euro to 1.6574. However, active cross selling of sterling especially versus euro (eur/gbp rose strongly fm 0.8715 to 0.8769) together with selling interest from a large U.K. fund sent the pair to 1.6486 in NY morning before staging a recovery to 1.6538.
On the data front, EU manufacturing and service PMI in August came in at 49.7 and 51.5 versus forecast of 49.5 and 50.9. EU and German Aug. ZEW economic sentiment were -40 and -37.6 against forecasts of -7 and -15.1 respectively, whilst German August ZEW current situation was 53.5 versus 90.6 in July. EU consumer sentiment in August was released at -16.6 vs the reading of -11.4 in July.
Data to be released on Wednesday include:
New Zealand trade balance, exports, imports, Japan CSPI, EU industrial orders, Germany IFO business climate, IFO current assessment, U.S. durable goods, ex. transport, ex. defense, monthly home price.