Market Review – 20/09/2010 22:56 GMT
Euro hovers near five-week high against dollar on ahead of U.S. Fed meeting
The single currency hovered near five-week high against the greenback on Monday, as investors were focusing on the FOMC meeting starting at 13:00 GMT on Tuesday and waited to see whether U.S. Fed would consider further stimulus measures to support the fragile U.S. economy.
Although the single currency edged higher from 1.3034 in Asian morning due to cross buying in euro and climbed to an intra-day high of 1.3122 after the Irish government denied Friday’s rumours that it might need help from the IMF, euro retreated from there as spreads of both Irish and Portuguese bond yields versus 10-year German bunds continued to widen to new lifetime highs of 412 basis points and 383 basis points respectively. Later, the pair rebounded from 1.3029 in NY morning on rumour bids at 1.3030 by European semi-official names and rose to 1.3096 before moving sideways, as market was waiting for the statement of FOMC meeting on Tuesday.
The single currency was supported by the firmness in U.S. and European stock markets, as DJI rallied by 146 points or 1.37% and closed the day at 10753.62. FTSE-100, CAC-40 and DAX also surged by 1.71%, 1.77% and 1.37% respectively.
In other news, Irish Prime Minister Brian Cowen said that he had the full support of his colleagues and was determined to pursue his economic reform policies. Earlier, a member of parliament from Cowen’s ruling party said it was time to replace Cowen as price minister.
Reuters reported that ECB’s Ewald Nowotny, central bank governor of Austria, said that markets were not stable enough to withdraw unlimited banking funding. He added that there was no medium-term inflation risks.
EU Economic Affairs Commissioner Olli Rehn said ‘Europe’s economic recovery has gained momentum, we have a solid ground on our feet; financial markets are still fragile in Europe and Europe’s long term growth potential remains very modest.’
The greenback edged lower from 85.84 in Asia due to market holiday in Japan and investors were reluctant to open yen positions on worries that Japan might intervene in forex market and dipped to 85.50 in European morning, however, buying interest at there lifted dollar and the greenback rose to 85.80 in NY afternoon.
Although the British pound rose in Asia in tandem with euro after Friday’s selloff from 1.5730 to 1.5612 and climbed to an intra-day high of 1.5686 after BOE said in its quarterly bulletin that ‘rally in the pound in the past 3 months may reflect improved investor confidence in the outlook for the U.K. public finances’, cable then dropped from there due partly to stop selling plus cross selling in sterling vs euro and yen (eur/gbp rallied from 0.8330 to 0.8413 while gbp/yen dropped from 134.44 to 133.23), and eventually fell to 1.5536 in NY afternoon.
Earlier in Europe, Moody’s said ‘UK’s AAA rating to withstand challenges’ had led to minor short-covering in pound. Moody’s said its stable outlook on U.K. reflected government’s commitment to stabilise and to reverse deterioration in financial strength. The ratings agency also added ‘UK economy can grow moderately in face of austere fiscal consolidation.’
The Australian dollar rose strongly against the greenback from 0.9355 in part due to Reserve Bank of Australia (RBA) Governor Glenn Stevens’s hawkish comments that RBA stood ready to use interest rates to help manage an expected strong pick-up in the domestic economy in coming months. Aud/usd eventually rallied to 0.9495 in NY morning.
Economic data to be released on Tuesday include:
Australia RBA’s Sept Minutes, Japan Leading indicators, Machine tools orders, Swiss Trade balance (chf), U.K. PS net borrowing, PSNCR, Canada CPI core, CPI, U.S. Building permits, Housing starts, Fed rate decision.