Market Review – 18/08/2010 22:52 GMTCable rises after the release of BOE’s minutesThe British pound strengthened against dollar on Wednesday as minutes from the BOE painted a brighter economic picture than expected and dashed market speculation over further quantitative easing.
Although the British pound resumed recent decline from 1.5999 top to 1.5498 at European opening, cable rebounded strongly and jumped to 1.5670 on active short-covering after the release of BOE minutes. However, the failure to re-test Monday’s 1.5703 high prompted investors to take profit, the pair then pared its gains and retreated sharply from intra-day high of 1.5689 to 1.5573 in NY morning before stabilising.
Minutes of the BOE’s August 4-5 meeting showed Bank of England policymakers considered the case for both easing and tightening policy this month, before voting eight to one to keep interest rates at a record low of 0.5%. Monetary Policy Committee member Andrew Sentance called for a 25 basis point rate hike for the third month running and argued that the recovery was already gathering momentum and there was a risk that inflation expectations could become de-anchored.
Although the single currency traded under pressure on risk aversion together with cross selling in euro versus yen in Asia and fell sharply to an intra-day low of 1.2824 in Europe, the pair rebounded strongly and extended its cable-led rise to 1.2910 and then 1.2923. Euro was also supported by solid German government bond auction, as Germany sold 5 billion euros of new 10-year Bund on Wednesday at a record-low average yield of around 2.31%, with total bids of 7.8 billion euros from 5.5 billion last time. However, euro pared its early gain and fell sharply from said intra-day high to 1.2843 in NY morning but then staged a minor recovery to 1.2886 due to the strong rebound in U.S. equities (DJI pared all its initial losses and closed the day up by 9.69 points or 0.09% at 10416) and the pair fell again in NY afternoon.
Earlier, solid Portugal Treasury bill auction gave further support to euro, as Portugal sold 1.525 billion euros in two treasury bills, more than the initially indicated offer.
The greenback weakened versus the Japanese yen on active cross buying in yen after re-testing Tuesday’s NY high of 85.69 in Australia and the pair dropped to 85.34 in Asian morning. Later, although dollar staged a recovery to 85.52 in European morning, renewed selling interest there pressured the greenback to an intra-day low of 85.19 before recovering to around 85.49 in late NY trading session.
In addition, Japanese Government Bond yields were under pressure on speculation over possible BOJ policy action, lifting the 10 year U.S./Japan spread towards 170 basis points.
Economic data to be released on Thursday include: Japan All industry index, Machine tools orders, Germany PPI, Swiss Trade balance (chf), U.K. PS net borrowing, PSNCR, Retail sales, CBI industrial trend, Swiss ZEW index, Canada Leading indicators, Wholesale sales, U.S. Jobless claims, Philadelphia Fed survey, Leading indicators.
