Sign inDarrell's Commentaries
Daily Currency Analysis
EUR/US$
The Euro was unable to make a fresh attack on resistance levels above 1.37 against the dollar on Tuesday and had a generally weaker tone.
The Euro-zone data was mixed, but with a slightly positive bias. The PMI surveys recorded a small monthly improvement in headline indices for March which suggested that activity may be stabilising to some extent, although the employment data remained extremely weak. French consumer spending weakened and there will still be fears that fear of rising unemployment will curb demand.
The Belgian business confidence index improved slightly for March which will increase hopes for at least a limited improvement in Wednesday's German IFO release.
The two minor US data releases were both stronger than expected with an improvement in the Richmond Fed manufacturing index and a reported increase in house prices for January. The congressional testimony from Fed and Administration officials failed to have a major impact after recent high-impact policy announcements. The Wednesday data is liable to be mixed with some scope for an improvement in new home sales while the durable goods data is liable to remain depressed.
The Euro dipped to lows near 1.3450 later in US trading in an on-going correction from the recent surge and underlying doubts over the economy while a lower Wall Street close also undermined the currency.
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Yen
Yen losses accelerated on Tuesday as the US banking plans continued to boost risk appetite. The Nikkei index rose to a two-month high and underlying demand for the currency remained weaker. The Japanese Finance Minister stated that reserves should be used to maintain currency stability and, although there were no suggestions of an immediate move to intervene, there will be further speculation that the Japanese authorities will deter any renewed yen appreciation.
The yen continued to weaken on the crosses with the Euro at fresh five-month highs beyond 134 while Sterling was at 20-week high. Yen weakness on the crosses helped push the dollar to a high of 98.50, but the US currency was unable to sustain the gains and weakened later in US trading as the yen also secured some respite on the crosses.
Sterling
Sterling held a firm tone in early Europe on Wednesday with further support from improved risk appetite.
The UK consumer inflation rate was sharply higher than expected at 3.2% in March from 3.0% the previous month and compared with expectations of a decline to 2.6%. The RPI did not fall to below zero as had been expected as higher food and transport prices pushed inflation higher.
The data will tend to increase Bank of England caution over an even more aggressive monetary policy and the promotion of Sterling weakness which will tend to support the currency.
The data will, however, also risk a further deterioration in medium-term sentiment towards the economy with the possibility that confidence in Bank of England policies will weaken.
The central bank warned that the government should not boost fiscal policy further given the debt stresses and the warning will tend to undermine currency support given that fiscal fears are already an important factor.
Sterling peaked at a six-week peak near 1.4780 against the dollar before correcting weaker while it also appreciated to 0.9170 against the Euro.
Swiss franc
The dollar found support close to 1.12 against the franc on Tuesday and strengthened to 1.13 in US trading. The franc advanced against the Euro with a move to 1.5225 as the Euro was generally weaker on the crosses.
Although the franc edged weaker against the dollar, there will be renewed speculation that the National Bank will protest against franc strength and intervene to sell the currency. In comments on Tuesday, bank Chairman Roth stated that intervention in the bond market requires caution and that the policy is currently in the opening phase.
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Australian dollar
As Asian markets advanced, the Australian currency moved to a high near 0.7090 against the US currency before a retreat to 0.7025. There has been increased speculation that the Reserve Bank of Australia will limit the interest rate cut to 0.25% at the April policy meeting which also provided support.
Risk appetite and gains in the currency could still be brittle and sentiment could reverse rapidly if equity-market selling pressure returns.
A correction in US trading on Tuesday was enhanced by a firmer US dollar and a lower close on Wall Street with the Australian currency weakening to 0.6950 later in US trading.
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