[B]Market Review - 20/02/2013 [I]21:41GMT[/I]
Dollar rallies broadly after Fed minutes signals possible shift[/B]
The greenback rose strongly against other major currencies on Wednesday as U.S. Fed minutes showed the central bank may slow or even stop buying asset before the employment picks up.
U.S. Fed minutes stated ‘a number of policymakers said may need to taper or halt QE3 before substantial labor market improvement; several Fed officials argued potential costs of reducing or ending asset purchases too soon also significant; a number of Fed policymakers discussed possibility of providing monetary accommodation by holding securities for longer; many Fed policymakers expressed some concerns about potential costs and risks from further asset purchases; many Fed officials expressed interest in exploring use of fed forecasts to convey information on asset buys, balance sheet; several officials said Fed should be prepared to vary pace of asset purchases in response to economic outlook, potential costs; many Fed officials worry prolonged period of sub-par U.S. growth could undermine economy’s long term potential.’
[B]Despite euro’s[/B] brief rise to 1.3434 in Asian morning, the pair fell in tandem with cable from 1.3432 to 1.3362 at New York open before staging a brief recovery to 1.3397. However, active cross selling of euro versus other currencies pressured euro further lower to 1.3338 at U.S. midday and dollar’s broad-based strength due to the hawkish Fed minutes sent the pair below 1.3300 level to 1.3271 in New York afternoon.
Although the British pound rose briefly from Tuesday’s low at 1.5414 to 1.5452 in Asia, the pair nosed-dived to a fresh 17-month low at 1.5281 ahead of New York open due to the dovish BoE’s minutes which showed that Governor Mervyn King and two other officials voted to relaunch asset purchases. Cable later tumbled further to a fresh 2-1/2 low at 1.5192 in New York afternoon after the release of Fed minutes before recovering.
The Bank of England Monetary Policy Committee released its minutes and stated ‘voted 6-3 to keep QE total at 37 5 billion sterling in Feb; King, Fisher and Miles vote for 400 billion sterling; MPC agreed important to communicate clearly willingness to take longer than usual to return CPI to 2%; “number of considerations” over more QE, MPC members placed different emphasis on them; case could be made that more QE would boost demand but not inflation, due to slack n improved supply capacity; but also case that better-targeted interventions than QE preferable if more stimulus needed; possible that further monetary stimulus alone in sufficient to transform outlook for growth.’
Versus the Japanese yen, although the greenback rose initially to 93.82 in Australian morning due to the record high of Japan trade deficit (-1629 billion yen), the pair fell below Tuesday’s low at 93.29 to 93.13 in Asia, however, dollar’s broad-based strength lifted the greenback in European session and price rose to 93.78 at New York midday due partly to the U.S. housing data. The dollar-supportive Fed minutes later pushed the pair higher to 94.05 before retreating back to 93.54 near closing.
The data showed U.S. housing dropped by 8.5%, much higher than the forecast of 3.6% decline. However, building permits climbed to 4-1/2 year high at 0.925 million.
Earlier in Australia, usd/jpy was supported on the news that Toshiro Muto, the hottest candidate out of 3 contenders to become next BoJ’s governor, has been dropped,
The New Zealand dollar tumbled from 0.8470 to 0.8327 on Wednesday after comments RBNZ’s Governor Graeme Wheeler who said that’ New Zealand dollar significantly overvalued; RBNZ ready to intervene in fx markets when circumstances right.’
In other news, Portugal Finance Minister said 'Q4 economic drop will have impact on 2013 output; will discuss extra contingency measures of 0.5%/GDP in next troika review; reasonable to expect that Brussels will give one more year to meet budget goal.'German Chancellor Merkel said ‘euro between $1.30 n $1.40 is normal in historical perspective; does not support idea of active exchange rate policy.’ Spain’s Prime Minister Rajoy said ‘will not relax efforts to turn around Spanish economy; will soon present new fiscal reforms; small companies will benefit from improved tax regime, new credit lines.’
[B]Data to be released on Thursday: [/B]
Swiss Trade balance (chf), France manufacturing PMI, services PMI, Germany PMI manufacturing, PMI service, EU PMI manufacturing, PMI service, U.K. PSNCR, Public sector net borrowing, CBI industrial trend, U.S. CPI, Real earnings, Jobless claims, Markit PMI preliminary, Existing home sales, Leading indicators, Philadelphia Fed survey.