Both euro and pound broke the key barriers for the first time in three months as the assault on the dollar continued in early European trade.
[B]Talking Points
• Japanese Yen: near 105.00 as equities remain under pressure, though BOJ stays still
• Australian Dollar: Above 98.00 at all time highs
• Euro: Hits 1.60 but ZEW worst on record
• British Pound: Blows through 2.000 as CPI stays hot
• US Dollar: PPI, Bernanke on tap[/B]
Dollar Under Attack as EURUSD Hits Record High, GBPUSD at 2.00- Will Bernanke Save The Day?
Both euro and pound broke the key barriers for the first time in three months as the assault on the dollar continued in early European trade. EURUSD hit a record high at 1.6039 and cable blasted through the 2.0000 level reaching 2.0162 in frenzied dealing as confidence in the greenback continued to plummet in the aftermath of investor reaction to the Fannie Mae and Freddie Mac rescue packages.
On the economic front the news was mixed with German ZEW survey printing at its worst level ever coming at –63.9 versus -55 projected as higher euro higher energy costs and lower stock market depressed investor sentiment in the EZ largest economy. The ZEW reading was worse then even the one at the depth of the 1992 recession but the markets quickly shrugged off the news partly because the ZEW has little direct meaning to the overall economy but mostly because the focus in the currency market right now is strictly on the systemic risk in the US economy and EURUSD is trading purely as a safe haven alternative to the buck.
Meanwhile in UK the CPI numbers showed that price pressures continue to accelerate despite the general slowdown in economic activity printing at 3.8% versus 3.6% projected the highest reading in 11 years. The news suggests that BoE will have no choice but keep rates steady even if demand declines further as headline numbers could top 4% in coming months. Cable rallied all the way to 2.0165, but eased somewhat off the high in a bout of profit taking.
Another high yielder, the Aussie, broke through the .9800 figure after the RBA minutes indicated that the Australian central bank will not consider easing for the time being as well, as growth and price pressures continue to fuel the economy. The Australian dollar continues to find support as long as the market sees little evidence of slowdown in China and could make a run for the psychological 1.00 mark if the anti-dollar sentiment identifies.
The North American session is likely see only more turbulence, first with the release of the PPI data and then with the testimony of Chairman Bernanke. With dollar now at record lows, the Fed chief will no doubt be asked about his plans to support it and should his remarks strike a dovish tone (i.e. should he suggest that US rates may be kept low for the foreseeable future ) the run on the greenback will likely continue with no help in sight.
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