[B]Market Review - 02/07/2013 [I]22:21GMT[/I][/B]
[B]Dollar gains broadly on QE tapering expectations[/B]
The greenback rose against other currencies on Tuesday on speculation that the Federal Reserve will reduce it stimulus measures sooner than expected due to recent upbeat U.S. data.
Versus the Japanese yen, the greenback edged higher from Asian low at 99.51 to 99.91 in European morning due to active cross selling of yen versus euro but then eased to 99.62. Later, dollar’s broad-based strength lifted the pair above 100 level in New York morning and price rallied to a 1-month high at 100.73 in U.S. afternoon before retreating.
Despite euro’s brief rise from Asian low at 1.3049 to 1.3078, the single currency tanked in tandem with cable to 1.3018 in European morning. The pair dropped further to a low at 1.2990 in New York morning due to dollar’s broad-based strength but then staged a recovery to 1.3038 on cross buying of euro versus yen. However, renewed selling interest pressured euro below 1.2990 to 1.2970 in U.S. afternoon due to the steep fall in Dows Jones Industrial Index.
Although the British pound rose from Asian low at 1.5194 to 1.5238 in European morning, the pair dropped to 1.5190 after the release of U.K. construction PMI (51.0 versus the forecast of 51.1) and fell further to 1.5137 in New York morning due to dollar’s broad-based strength but then recovered to 1.5180. However, renewed selling interest pressured cable to 1.5146 in U.S. afternoon.
RBA kept interest rate unchanged at 2.75%. RBA’s statement said ‘Australian dollar still at high level; possible A$ could fall further; lower Australian dollar would help rebalance economy; recent data confirms Australia growing a bit below trend; commodity prices remain at high levels by historical standards; policy appropriate for the time being; inflation consistent with medium term target over next 1-2 year.’ The Australian dollar fell to 0.9152 in European morning due to this dovish statement and dropped further to 0.9130 in New York session.
In other news, EU officials said ‘Greece has 3 days to reassure Europe and the IMF fund it can deliver on conditions attached to its international bailout in order to receive the next tranche of aid.’ Spain’s budget minister Montoro said ‘2Q probably last quarter of economic contraction; Spain’s competitiveness gains “spectacular”; Spain turned corner by reducing budget deficit.’ BOE FPC’s Kohn said ‘perfectly reasonable to think tightening of monetary policy some way off; decision of unwinding QE should remain with MPC not FPC.’
On the data front, EU PPI in May came in at -0.3% m/m and -0.1% y/y, lower than the expectation of -0.2% and 0.0% respectively. U.S. factory orders in May came in at 2.1%, better than the expectation of 2.0%, previous reading was revised to 1.3%.
[B]Data to be released on Wednesday:[/B]
Australia new home sales, trade balance, retail sales, China non-manufacturing PMI, HSBC service PMI, Italy service PMI, France service PMI, Germany service PMI, U.K. BRC shop price index, service PMI, EU service PMI, retail sales, U.S. ADP employment, trade balance, jobless claims, ISM non-manufacturing ISM, Canada trade balance, exports, imports.