Market Review – 05/07/2010 19:34 GMTEuro falls against U.S. dollar on profit-taking and rate outlookThe euro traded sideways in Asia but with a soft undertone on Monday after Friday’s retreat fm 1.2613 to 1.2528 in NY trading following release of weaker-than-expected U.S. jobs data. Short-term speculators sold euro in Australia at 1.2563 to 1.2521 before trading inside the range. However, the single currency ratcheted lower after meeting renewed selling at 1.2558 in European morning and formed an intra-day low at 1.2510 in thin European mid-day as markets in the U.S. were closed for Independence Day. Euro zone Services PMI fell to 55.5 in June from May’s 33 mth high of 56.2. EU retail sales in May rose by 0.2% in May vs forecast of -0.1%. The data had little impact on the market as focus was on the rate decision meeting on Thursday. The ECB is widely expected to leave rates unchanged at 1.00% as investors think euro zone economy is not strong enough to warrant an interest-rate hike and that would eventually end the recent rally from 1.1876.
Both ECB President n French Finance Minister made comments at a financial conference on Sunday in AIX-EN-PROVENCE, France. Trichet said reducing EU deficits and putting in place sustainable fiscal policies are key to restoring confidence, which will in turn foster growth whilst Christine Lagarde said European stress tests will show European and French banks to be solid, the results of these tests target around 100 of the Continent’s largest banks will be published on July 23.
Similar to euro, cable retreated from 1.5230 high to 1.5155 on Friday following the release of U.S. jobs report and sterling traded inside 1.5165-1.5205 in Asia on Monday. However, the British pound dropped sharply after the release of weaker-than-expected UK service PMI as the figure suggested the country’s economic recovery remained fragile. UK services PMI fell for the third time in 4 mth to 54.4, the lowest level since Aug 09, in June from 55.4 in May. Cable hit an intra-day low of 1.5090 in European mid-day before recovering. Cross-selling in sterling also weighed on cable as eur/gbp pair rebounded from 0.8253 to 0.8297 and gbp/jpy declined from 133.66 to 132.41.
Vesus the Japanese yen, although the greenback ratcheted higher from 87.65 to 88.01 and traded narrowly in Asia, the pair fell to a marginal low of 89.64 before trading sideways in European session with U.S. markets closed for July 4th Independence Day. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies was up 0.25% from late U.S. trade on Friday at 84.641.
In other Asian news, Chinese Premier Wen Jiabao said on Sunday China’s economic policies ‘face increasing dilemmas’ because the impact of the global financial crisis is more serious than expected, however, he repeated that China won’t hold back its steps to restructure the economy for growth. In addition, People’s Bank of China Vice Governor Hu Xiaolian said in a weekend conference in Shanghai that exchange rate flexibility has its benefits but large-scale volatility in a currency’s value can be harmful to the economy.
Economic data to be released on Tuesday include: Australia Trade balance, RBA rate decision, Japan Leading indicators, Swiss CPI, Canada Building permits, U.S. ISM non-manufacturing.
