[B]Market Review - 05/03/2013[/B] [I][B]22:05GMT[/B][/I]
[B]Euro rebounds as Dow hits record high boosts risk sentiment[/B]
The single currency gained slightly versus the dollar on Tuesday as gain by the Dow to record highs boosted risk sentiment, however, traders remained cautious ahead of ECB rate decision on Thursday. Concerns that Italy will be unable to pass structural reforms and austerity measures remains as the country edged closer to fresh elections, following inconclusive elections last week also weighed on the euro while rebound of dollar versus other major currencies after upbeat U.S. ISM non-manufacturing data also capped the pair’s upside potential.
Earlier in the day, although euro hit a session high of 1.3075 in European morning after data showed that services PMI in Germany and Eurozone rose to 54.7 and 47.9 in February, intra-day gain was capped as worries over the outlook for Italy fuelled speculation over a possible rate cut by the European Central Bank in the coming months. Later, the pair dropped sharply to 1.3017 due to cross-selling of euro versus the British pound and then marginally to 1.3010 in New York morning after release of better-than-expected U.S. non-manufacturing before recovering. Euro was last seen around 1.3050 near New York close.
Euro gained support and recovered from 1.3017 to 1.3055 in New York morning as another report showed that euro zone retail sales rose 1.2% in January, well above expectations for a 0.2% gain.
The British pound went through a mini-roller coaster session on Tuesday as although cable staged a jump from 1.5107 in tandem with euro during the European morning and hit a session high of 1.5200 after a report showed U.K. services expanded in February at a faster pace than market forecast, damping speculation the Bank of England will add more stimulus, the pair retreated later in the day on dollar’s firmness versus other major currencies and dropped to 1.5094 in New York afternoon before stabilizing.
Versus the Japanese yen, dollar dropped from Asian high of 93.54 to 92.92 in post-Tokyo lunch session but rebounded to 93.52 in New York morning due to release of upbeat U.S. ISM non-manufacturing report, however, cross-buying of yen against the euro and the British pound capped gain there and the pair was last seen trading around 93.35-40 in New York afternoon.
News worth noting, BoJ Deputy Governor nominee Iwata said ‘change in the BoJ’s policy regime will lead to shift in money from savings to investment; money flowing from savings lead to higher stocks, lower yen; change in the BOJ’s policy regime will lead to shift in money from savings to investment; need to pursue quantitative easing even more than we have in past; fiscal spending is a temporary solution, must be accompanied by monetary easing; necessary to influence long-term rates as this will impact capital expenditures; BOJ needs to increase duration of JGBs it purchases to 5 years or more; revision to BOJ law is necessary to explicitly say BOJ has freedom to choose how it meets inflation target; BOJ law revision may not happen right away, more debate in parliament needed; resigning from BOJ post would be ultimate way to take responsibility for falling to meet inflation target; cud reach 2% inflation sooner if BOJ law is revised, as that would foster inflation expectations.’
In other commodity currency, the Australian dollar rallied on Tuesday after Reserve Bank of Australia (RBA) kept official interest rates on hold for the second month in a row, leaving the official cash rate at 3%. Despite a brief retreat from 1.0224 to 1.0193 in Asian morning, the pair rose strongly after the announcement and ratcheted higher to 1.0254 ahead of European open, price then consolidated inside 1.0215-1.0254 in Europe before extending intra-day gain to 1.0263 in New York afternoon.
RBA said that ‘scope to ease further if needed; growth in China has stabilised at fairly robust pace; commodity prices little changed at reasonably high levels; growth likely to be a little below trend in coming year; inflation seen consistent with target; peak in resources investment is approaching; has been significant easing in policy; near term outlook for investment outside resource sector relatively subdued; are signs that lower rates are having an effect; public spending forecast to be constrained.’
[B]Data to be released on Wednesday includes[/B]:
U.K. BRC shop price index, Australia GDP (Q4), EU GDP (Q4), U.S. ADP employment, Factory orders, Beige book , and Canada BOC rate decision, Ivey PMI on Wednesday.