Moving ahead at a slow yet unrelenting pace, the EURUSD put in a new two-year high in the London session at 1.3640 before reining in momentum and pulling back to 1.3585. A rebound in the carry trade helped boost USDCHF 55 points to 1.2090. On the same bump in sentiment, the Japanese yen gave back more of its big gains won over the past three sessions. In the overnight, USDJPY crossed back above 118.50 and worked its way back up to 119 as the US crowd took control. Finally, GBPUSD was won top prize for volatility among the majors. From a modest overnight range, the pair rallied 50 points to 2.0070 before taking a tumbling spike low to 1.9990.
The economic calendar was completely devoid of market-moving indicators Friday morning, leading fundamental and event-risk traders to make their trades off of exogenous factors. Risk aversion was clearly a factor that was affecting markets the world over. On Thursday, Chinese officials stoked fears of a global liquidity crunch when they delayed first quarter GDP and inflation data until local capital markets closed. Growth of 11.1 percent and an inflation rate at two-year highs, led the international investment community to expect rate hikes that could hold repercussions for equity and debt markets around the world a testament to the interconnectivity of global markets. However, most of these fears were relieved when traders flooded back into Asian equities. The highs and lows of risk aversion had little direct effect on the dollar since its title as the worlds reserve currency has slipped in the past few years. This change was clearly seen in the rebound in the preferred carry trades. Both USDJPY and USDCHF marked tame rebounds through the session.
Back in the US, dollar traders were taking in speeches from Treasury Secretary Henry Paulson and the Feds Mishkin. Paulsons meeting was the more important one in terms of currency market impact. Speaking at a conference on China, the Treasury Secretary had to step carefully in light of the trade restrictions the US Commerce Department imposed on the Asian giant a few weeks ago and the subsequent words of discontent from Chinese officials the tax provoked. Going through his commentary, there was little in the way of disruption or a shift from the policy that he has cultivated since accepting the position in Washington. Mishkin on the other hand, doused the dollar somewhat. The Board of Governor member said in his speech on the US economy that he expects inflation to cool to 2.0 percent in the next few years.
Relief rallies in Asian equities spelled the same for the benchmark indices in the US. The momentum couldnt have come at a better time for bulls who are now pushing the market to record highs. By 14:45 GMT, the Dow was leading the pack with a 0.92 percent rally 12,926.47, just below the intraday high that marked a new record earlier in the morning. At the same time, the NASDAQ Composite was up 0.79 percent at 2,525.21 while the S&P 500 Index grew 0.74 percent to a new six-and-a-half year high 1,481.57. Amid the rally, a number of Dow components reported considerable moves on otherwise modestly better earnings numbers. Shares of Caterpillar surged $3.47 or 5.1 percent to $72.09 after first quarter earnings per share rose to $1.23. Also beating Wall Streets projections, American Express earnings numbers pushed shares $1.50 or 2.6 percent higher to $66.55.
Treasuries were weighed down Friday morning as fears over a Chinese-led sell off in global equities were relieved by rallies. The ten-year note was only 4/32nds lower at 99-18 with a yield 2 basis points higher at 4.680 by 14:40 GMT. Thirty year bonds were 9/32nds off the open at 98-13 while yields rose 2 basis points to 4.851.