Market Review – 16/08/2010 22:51 GMTDollar falls sharply versus yen and Swiss Franc on risk aversionDollar tanked against the Japanese yen on Monday, as concerns over global economic recovery prompted investors to buy safe-haven currencies such as the Japanese yen and Swiss franc.
The greenback fell against the yen from 86.24 to 85.70 in Asian morning on risk aversion and active cross buying in yen together with talk of possible demand from Japanese exporters and investor fund repatriation. Later, although dollar staged a recovery in Europe, renewed selling at 85.96 pushed dollar sharply lower again and the pair sank to an intra-day low of 85.21 in NY before trading narrowly. The weak Japanese growth data (GDP) sparked risk aversion which pressured usd/jpy lower. Japanese Q2 GDP annualised was 0.1%, versus the expectations of 2.3% and the previous reading of 5.0%.
In addition, Japanese Economics Minister Satoshi Arai said the Japanese government would need to work with the BOJ to respond to the sharp rise in yen against dollar. He added the government was in discussions with the BOJ on yen rise and he would be watching whether yen rise might prevent a self-sustaining economic recovery. Earlier, the senior Japanese official Keisuke Tsumura (parliamentary secretary at the Cabinet office) said that risks posed by a strong yen to Japan’s economic recovery were increasing.
The U.S. dollar tumbled against Swiss franc from 1.0534 to 1.0350 on risk aversion and active cross buying in chf (eur/chf fell sharply from 1.3449 to 1.3272) as speculators bought Swiss franc actively despite last Friday’s comments from SNB’s Jordan about the success of the SNB’s intervention.
In other news, the Federal Reserve said that bank lending standards eased somewhat over the last quarter, while demand for business and consumer loans was largely unchanged. The Treasury Department said earlier that net long-term capital inflows rose to $44.4B in June from a $35.5B inflow in May.
Although the single currency resumed its decline against the dollar from this month’s high at 1.3334 to 1.2734 on cross selling in euro versus yen at Asian opening, the pair then rebounded on short-covering and ratcheted higher to 1.2836 in Europe. Later, euro rose again and climbed to an intra-day high of 1.2872 before retreating on profit-taking due to the weakness in DJI (DJI closed the day down by 1.14 points at 10302).
The single currency was also supported by comments of Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee. He said that China has been buying ‘quite a lot’ of European bonds.
Despite the British pound’s retreat to an intra-day low of 1.5535 at Asian opening, sterling staged a rebound in tandem with euro on short-covering, as a comment from Telegraph that ‘Ireland could carry out further spending cuts without crashing into an irreversible debt-deflation spiral’ might in part boost the optimism of cable against dollar, and sterling climbed to 1.5642 at European opening. Later, cable rose again to an intra-day high of 1.5703 in NY due to dollar’s broad-based weakness together with the renewed cross buying in sterling before retreating.
Earlier, Rightmove house price index showed U.K. house asking prices fell for the second consecutive month in August, dropping 1.7% on the month vs a 0.6% fall in July, suggesting the British economy had shown the sign of sluggishness.
On data front, Eurozone July inflation confirmed at 1.7% y/y versus 1.4% y/y in June whilst core inflation was 1.0% y/y against 0.9% in June and the data came in as widely expected.
Economic data to be released on Tuesday include: EU Current account (euro), ZEW survey, U.K. CPI, CPI core, RPI, RPI–X, Germany ZEW index, U.S. Building permits, Housing starts, PPI, PPI core, Industrial prod’n, Capacity utilisation.
