by Darrell Jobman, Editor-in-Chief TraderPlanet.com
There were no significant data releases during the day with the main focus on asset markets. The results from Citigroup contained a lower than expected figure for debt write-downs and this boosted confidence that Wall Street banks could manage the credit and economic risks. There have also been generally favourable US corporate results over the past 24 hours, notably from Google, which has boosted optimism in the wider economy and US financial markets.
Some optimism that the credit crunch could be easing also increased speculation that the Federal Reserve would be less inclined to cut interest rates aggressively at the end-April meting. These expectations were also fuelled by the more cautious remarks from Fed officials over the past 24 hours.
Futures markets were indicating that the chances of a 0.50% rate cut at the FOMC meeting had fallen to below 10%. In this environment, the dollar has secured a correction on yield and risk appetite grounds.
ECB members maintained a tough stance on inflation during Friday and this will tend to limit the scope for Euro selling in the short term. There was, however, evidence that central bank Euro buying had eased significantly on Friday with a possible perception that the Euro offered little value at current levels. Official comments on currencies will continue to be watched very closely next week.
The dollar held above the 102.0 level against the Japanese currency in Asian trading on Friday with yen demand still at reduced levels.
Domestically, the Bank of Japan lowered its assessment of the economic view while consumer confidence was slightly weaker than expected which will reinforce unease over the economic trends.
Global risk tolerances will tend to remain dominant in the short term. US corporate earnings results were generally close to or above expectations with lower debt write-downs than expected and this improved risk appetite. Renewed interest in carry trades pushed the yen sharply weaker with lows near 104.65 against the dollar as Wall Street opened higher. The yen also weakened to 164.70 against the Euro before a correction. Yen trends will continue to be dominated by levels of risk aversion in the short term.
The UK currency found support close to the 0.80 level against the US dollar on Friday and pushed to highs around 0.7875 before correcting weaker to 0.7920. Sterling also challenged the 2.00 level against the dollar and was able to consolidate above the 1.99 level.
There was further evidence that the UK authorities were pushing towards an agreement to ease mortgage-related strains. The Bank of England is likely to accept around GBP30bn in mortgage-related securities in exchange for government bonds. If such measures can ease money-market rates this would ease pressure on the central bank to sanction a further aggressive near-term cut in interest rates.
The UK currency also gained support from an improvement in risk tolerances while there was speculation that the Royal Bank of Scotland rights issue would boost demand for Sterling given the extent of overseas ownership of the shares.
The Swiss currency weakened sharply on Friday with lows near 1.0280 against the US dollar while the franc also weakened to lows beyond 1.6150 against the Euro. The franc was able to regain some ground later in US trading with the currency over-sold on a short-term view.
The Swiss currency was undermined by an improvement in risk appetite which triggered renewed demand for high-yield currencies and lessened defensive support for the franc.
The Australian dollar hit resistance close to the 0.94 level against the US dollar during Friday, but corrections were generally limited in local trading as the currency retained a firm tone.
Commodity prices have remained at elevated levels and the latest data reported a sharp rise in export prices which also boosted sentiment. There were no significant domestic influences and there will continue to be unease over the risk of a sharp slowdown in growth.
US dollar moves dominated in European and US trading and the Australian currency dipped to lows below the 0.93 level as the US currency gained ground while gold prices came under pressure.