by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar remained under pressure in early European trading on Thursday with a retreat to 1.4215 against the Euro before a bounce after the US data release. After new lows around 1.4240 as the Euro secured strong buying support, there was a fresh New York reversal to 1.4190 with cross trading an important influence.
The August US trade deficit narrowed to US$57.6bn from a revised US$59.0bn in July as imports edged lower while exports pushed slightly higher. Oil imports rose and there was a further reduction in the underlying deficit. The lower deficit will provide some support to third-quarter GDP growth and will also boost confidence that the US trade situation is improving.
The latest jobless claims data also recorded a drop to 308,000 in the latest reporting week from 320,000 previously which suggest that the labour market is still firm. Housing foreclosures fell in September, although there was still an annual increase of close to 100%.
Underlying dollar confidence remains very fragile and there has been further speculation over central bank diversification away from the US currency. Thursday’s erratic moves also suggest some underlying dollar demand on valuation grounds.
The ECB monthly report stated that it would closely watch all developments. The ECB will be concerned over the Euro situation, although it also remains concerned over inflationary pressure and will want to maintain a tightening bias. The Euro’s late retreat may spark some speculation over covertcentral bankintervention.
Yen
The yen came under pressure on Thursday with lows beyond 167.50 against the Euro and 117.70 against the dollar, but rallied strongly in New York as Wall Street faltered.
The Bank of Japan leftinterest ratesunchanged at 0.50% following the latest council meeting with Mizuno again calling for a rate increase. Governor Fukui took a broadly unchanged stance on policy in his latest comments and suggested a potential tightening by December. Until there is a tightening, the yen will remain vulnerable to selling pressure if risk tolerances remain higher, although volatility levels are liable to increase as high-yield currencies are again reaching unsustainable levels.
The economic data was disappointing with a 7.7% drop in core machinery orders for August, although this followed a sharp increase the previous month.
Markets will continue to monitor official rhetoric on currencies as there is likely to be persistent European pressure for stronger Asian currencies to help curb global trade imbalances.
Sterling
Sterling came under pressure against the Euro on Thursday with losses towards 0.6990 while the UK currency was unable to hold above 2.04 against the dollar with lows around 2.0310.
Sterling was undermined in part by reports of Sterling selling in association with the RBS-led bid for Dutch bank ABN.
The latest RICS survey reported a net balance reporting a drop in prices of 14.6% in September from 3.3% the previous month which was the weakest figure for two years while underlying confidence also deteriorated sharply.
The data will tend to revive speculation over a near-term cut in rates and put some downward pressure on Sterling. The British Chambers of Commerce (BCC) also issued a notably downbeat assessment of the economy’s prospects. Although the survey also recorded firm manufacturing growth, international confidence in the UK currency is liable to deteriorate.
Swiss franc
The Swiss currency came under sharp pressure against the Euro on Thursday with losses beyond 1.68 while the Swiss currency was unable to sustain levels below 1.18 against the dollar. The Swiss currency recovered some ground against the Euro later in US trading with the US currency holding above 1.18.
The Swiss currency was undermined by an increase in risk tolerances and a renewed interest in carry trades funding through the franc. Volatility levels are liable to remain higher with the threat of disorderly conditions surrounding carry trades.
Australian dollar
TheAustralian dollarhas remained strong over the past 24 hours with the currency testing fresh 23-year highs above 0.9050.
Domestically, the Australian labour-market data was mixed with a weaker than expected increase in employment of 13,000 for September while unemployment fell to 4.2% from 4.3%. Overall confidence in the economy will be sustained in the short term which will help underpin the currency. The Australian dollar will also look to take advantage of greater confidence in carry trades as risk tolerances remain stronger. There is still the threat of higher volatility with the currency retreating back to 0.90 in New York.
