Overview: July 9, 2013 The U.S. dollar edged up close to the prior day’s three-year highs against a basket of rivals, but overall trade remained confined to a cozy range ahead of key Fed events on Wednesday. The buck’s weeks-long upswing encountered a few speed bumps yesterday as investors took a lull in the data calendar to realize profit. The run of dollar bullishness appears to have legs on the view that the Fed may be a matter of months away from downshifting stimulus at a time when other central banks may have to deploy more. Such a view hit the U.K. pound hard on Tuesday after weaker than expected British data on manufacturing and trade knocked sterling to four-month lows against the dollar and euro. The euro was little changed and slightly north of Friday’s May 20 low against the greenback. Japan’s yen also steadied with many investors sidelined ahead of key remarks Wednesday from Fed chief Bernanke. The Fed chair’s remarks will be parsed closely for any potential change in tune following Friday’s upbeat jobs report. Positive risk sentiment buoyed currencies from Canada and Australia. Canada today will release key housing starts data for June. GBP Investors dialed up bearish sentiment towards the pound on Tuesday after weak local data on manufacturing and trade underscored the risk of more monetary easing by the nation’s central bank. Manufacturing output unexpectedly contracted 0.8% (m/m) in May versus forecasts of a 0.3% (m/m) increase. Britain’s trade deficit widened more than expected to £8.49 billion in May, above both the £8.47 billion forecast and the prior month’s £8.43 billion shortfall that was revised from an initial £8.22 billion deficit. Disappointing data like today’s call into question the sustainability of Britain’s nascent recovery thereby reinforcing the dovish tone of Gov. Mark Carney and his colleagues when they said last week that a rate rise was likely a long way off. EUR The euro continued to tread water and keep above Friday’s near seven-week low against the dollar. Investor preference to cash in a few gains on the dollar’s rally as well as relief that Greece was able to secure its next batch of international aid have supported the euro. Still, the days of meaningful gains for the euro appear on a far horizon after the European Central Bank last week signaled an easy bias for rates, putting the euro at a disadvantage against the buck whose central bank could rein in its level of easiness as soon as September. CHF Improving risk appetite and U.S. economic optimism converged to pressure the Swiss franc and send it to its lowest in nearly six weeks. Stock gains in Europe sapped demand for defensive plays like the Swissie. But downside risk for the franc could prove fairly limited given that market volatility doesn’t appear to be out of the woods, which may keep investors from straying too far from safer alternatives. AUD The Aussie buck firmed to one-week highs against its American peer, a benefactor of greenback profit-taking and buoyant risk tolerance. But the Aussie appeared on shaky ground amid elevated risk for another Reserve Bank rate cut. Overnight data showed area business conditions fell to -8 in June, the weakest since May 2009, from -4 in May. A gauge of business optimism rose to zero in June, pointing to evenly balanced optimism and pessimism, from -1 in May. Australia’s monthly jobs report looms Thursday with a modest contraction on the cards. A weak jobs outcome would cement rate cut expectations and leave the Aussie vulnerable to fresh selling pressure. USD A tick upward in U.S. Treasury yields helped lift the dollar towards the prior session’s three-year highs against a basket of six major counterparts. Wednesday looms importantly for the buck when the Fed releases its June meeting minutes and the bank chairman takes to the public pulpit. Any Fed acknowledgement of Friday’s positive jobs report would tend to see the odds improve in the favor of a taper by bankers’ Sept. 17–18 meeting, a scenario seen supportive of the dollar.
Posted on: Wed, 10 Jul 2013 10:43:00 +0000
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