Market Review – 03/08/2010 22:02 GMTDollar sinks to eight-month low against yen on concerns over Fed’s additional measuresDollar fell sharply against the Japanese yen to 8-month low on Tuesday, as concerns that U.S. may require additional measures to boost its economy.
Although the greenback dropped briefly to 86.28 against the Japanese yen in Asian morning due to the perception that the U.S. growth outlook is deteriorating, the greenback rebounded on short-covering as North Korea’s military threatened a ‘physical counterattack’ to a naval drill by South Korea off the Korean Peninsula’s west coast that will start Thursday and climbed to a high of 86.53 in European morning. However, dollar fell again and tumbled in Europe after triggering some stops at 86.00. The greenback then extended its losses after the release of weaker-than-expected U.S. pending home sales and factory order, added concerns that U.S. may take additional measures to boost its economic recovery, and hit 8-month low of 85.67 in NY morning before recovering.
U.S. pending home sales in June dropped by 2.6%, compared with the forecast of 0.6% decrease and 30% drop in May, while U.S. factory orders in June fell by 1.2%, versus the expectations of 0.5% decrease and 1.4% drop in May.
The Wall street Journal reported on Tuesday that the Fed officials would consider to renew its Treasury or mortgage purchases when they meet on August 10, amid signs U.S. economy may be losing momentum to recover.
In other news, Japan Finance Minister Yoshihiko Noda said markets decide forex rates but added excessive, disorderly moves in the foreign exchange market were undesirable and a too strong yen would hurt exports and households. Noda declined to comment on the possibility of intervening in the market. BOJ’s board member Miyao said that he was watching currency moves carefully as sustained yen gains might affect the central bank’s forecast that Japan’s economy would recover moderately.
Although the single currency eased in Asia after Monday’s strong rise to a 3-month high of 1.3196 and retreated to an intra-day low of 1.3146 in European opening on profit-taking together with concerns over ECB Trichet’s potential successor, euro then penetrated said 1.3196 resistance and rallied to a fresh 3-month high of 1.3262 after triggering stops at 1.3250. However, the single currency retreated in NY morning after the release of slew of weaker-than-expected U.S. economic data and the pair hit a low of 1.3183 before staging a bounce.
Buba President Axel Weber may become the next head of the ECB when Frenchman Jean-Claude Trichet retires in the autumn of next year.
The British pound eased in tandem with euro to an intra-day low of 1.5862 in Asian mid-day after rocketing from 1.5695 to as high as 1.5907 in the previous session, however, renewed buying interest there lifted cable and the gbp/usd surged to a high of 1.5965 in Europe and later to a fresh 6-month high of 1.5968 ahead of NY morning, despite the release of weaker-than-expected U.K. Construction PMI data, which fell to 54.1 in July (versus the expectations of 58.0 and 58.4 in June). The pair traded in a volatile manner in US session and closed around 1.5950 in late NY trading.
RBA kept its cash rate unchanged in August at 4.5% as expected and said it was appropriate to raise interest rate in the past, moderating inflation and some uncertainty about the global economy.
On economic front, EU PPI in June came in at 0.3% m/m and 3.0% y/y, versus the forecast of 0.4% m/m and 3.1% y/y. U.S. personal income remained unchanged in June, compared with the expectations of 0.2% increase and the downward revision of the reading in May from 0.4% to 0.3%.
Economic data to be released on Wednesday include: Australia House price index, Trade balance (aud), U.K. BRC shop price index, Halifax hse prices, Germany Services PMI, EU Services PMI, U.K. Services PMI, Retail sales, U.S. ADP employment, ISM non-manufacturing.
