[B]Market Review - 17/07/2013 [I]22:24GMT[/I]
Dollar rebounds against euro on Bernanke’s comments[/B]
The greenback rose against euro on Wednesday as the Federal Reserve Chairman Bernanke said the central bank will start scaling back its bond purchase program later this year but he may change the measures, depending on the economic condition.
The single currency moved inside a narrow range in Asia and dropped to 1.3122 in European morning before rising to 1.3166. Later, although euro climbed to a high of 1.3179 in New York morning after the release of dovish transcript from Fed’s Bernanke together with the weak U.S. housing starts and building permit (-9.9% and -7.5% versus the forecasts of 5.0% and 1.5%), the pair tanked to 1.3083 due to the comments from Fed’s Bernanke in his testimony but then staged a strong rebound to 1.3160 in New York afternoon before retreating.
Bernanke’s prepared transcript stated ‘Fed anticipates appropriate to begin moderating monthly bond purchases later this year, ending them around mid-2014; because asset buys depend on economic, financial developments, they are “by no means” on a preset course; bond-buying could be reduced at faster pace, a slower pace, or even increased for a time, depending on outlook; guideposts for interest rate forward guidance are thresholds, not triggers; eventual rate increases, when they begin, likely to be gradual; conditions in labour market gradually improving; jobs situation far from satisfactory, unemployment rate remains well above normal; rising home construction, sales, adding to job growth; softness in inflation partly reflects factors likely to be transitory.’
Later, in the Q&A session of his testimony, he said ‘sequestration constraints on economy likely to wane; housing, autos are leading recovery; housing price increase stimulate construction; mortgage rates remain relatively low; Fed not seen QE disrupting treasury market; about 2% of unemployment rate is cyclical; does not see much evidence that structural component of unemployment has increased in recent period; within FOMC deliberations, there was broad support for use of 7% guidepost for ending asset purchase; persistently lower real growth rate for U.S. economy would imply a lower equilibrium points for interest rate; unwinding of excessively risky positions creates unwelcome tightening of financial conditions but has some benefits as well; a number of problems in U.S. labour market; profits currently run ahead of jobs, that’s one problem for economy; Fed expects economy to pick up later this year; QE aimed at achieving more short-term momentum.’
Versus the Japanese yen, the greenback rose to 99.55 in Asia and then 99.83 in European morning on cross selling of yen versus euro. Later, although the pair edged higher to 99.89 in New York morning, the pair tanked to 99.05 on dovish transcript from Fed’s Bernanke, however, failure to re-test Tuesday’s low at 98.89 prompted short-covering, price rebounded to 99.95 before retreating to 99.33 in U.S. afternoon.
Although the British pound traded narrowly in Asia and dropped to 1.5081 in European morning, the pair jumped to 1.5247 after the release of BOE MPC minutes together sharp fall in U.K. jobless claim (-21.2K versus the expectation of -8.0K), and then rose further to a high of 1.5268 in New York morning on active cross buying of sterling versus euro. However, cable retreated sharply to 1.5154 on dollar’s strength before staging a rebound to 1.5244 at U.S. midday.
Bank of England minutes showed MPC voted 9-0 to keep QE bond purchase total at 375 billion sterling and to keep rates at 0.5%. It said ‘some members believe more stimulus warranted, not sensible this month as committee investigating other options; MPC August response on merits of forward guidance would shed light on necessary scale and form of future stimulus; for other members asset purchases not warranted now, only some of these believe they remain an effective tool; U.K. economic development generally positive; in line with May forecasts; further signs over past month that recovery in train, but it remains weak by historical standards.’
In other news, Fed beige book said ‘U.S. economy continued to expand at a modest to moderate pace in most regions since last survey; manufacturing activities picked up in most districts; many districts reported increased in new orders, shipments; residential real estate and construction activities advancing at a moderate to strong pace in all districts; employment held steady or increased at a measured pace in most districts, reluctance to hire permanent workers noted.’
[B]Data to be released on Thursday: [/B]
New Zealand ANZ consumer confidence, Australia business confidence, Swiss trade balance, EU current account, U.K. retail sales, U.S. jobless claim, Philadelphia Fed survey, leading indicators, Canada wholesale sales.