by Darrell Jobman, Editor-in-Chief TraderPlanet.com
EUR/US$
The dollar pushed to highs near 1.5530 in Europe on Wednesday, but was unable to sustain the gains and retreated to fluctuate around the 1.5650 region ahead of key US events.
The ADP employment report was stronger than expected with an 8,000 increase in employment for March following a revised 18,000 decline for the previous month. The data is still weak as it would suggest payroll growth of around 30,000, but there will again be some relief that the figure was better than expected and stronger than in February.
There is also the potential for Friday payroll estimates to be upgraded slightly following the data, but there will continue to be caution over potential labour-market weakness and reservations over aggressive trading ahead of the data.
Fed Chairman Bernanke stated that a recession was a possibility, but that he was not yet prepared to declare one. He also stated that the combination of fiscal boost and interest rate cuts would help strengthen the economy over the second half of the year.
Markets will be looking for further rate cuts from the Fed and Bernanke’s comments were certainly cautious. Nevertheless, expectations of a 0.50% cut at the next meeting have continued to decline with futures markets suggesting a near-90% chance of a 0.25% reduction. Optimism over the second half should provide some dollar support.
European sources suggested that the subject of the weak dollar would be brought up at the G7 meetings during the second week of April and fears over more decisive actions to restrain the Euro will tend to curb aggressive currency buying. The ECB stance will still provide important short-term support even though money-market tensions persisted during Wednesday. The dollar was unable to sustain gains and weakened back to 1.5685 later in New York.
Yen
The dollar found a base around the 101.50 level against the yen in Asian trading during Wednesday and pushed to highs around 102.85 as US markets opened.
Risk aversion has eased which has helped trigger a renewed flow of funds into high-yield assets while the drop in market volatilities has also encouraged a flow of funds into riskier assets. These trends will tend to be enhanced by a lack of confidence in the domestic economy following a batch of weak data.
Overall confidence in global financial markets will still be fragile and there is likely to be increased exporter selling which will act as a headwind to further dollar gains in the short term. The US currency dipped back towards the 102.20 level in US trading as Wall Street weakened.
Sterling
Sterling found support weaker than 0.79 against the Euro on Wednesday, but was unable to break the 0.7850 region and drifted back towards 0.79 as the dollar struggled. The UK currency was unable to break above 1.99 against the dollar, but had a firm tone as fears over global credit conditions eased.
The UK construction PMI dipped to 47.5 in March from 52.4 the previous month which was the lowest reading for five years and will cause some further unease over the outlook for the housing sector.
Elsewhere, credit card borrowing for the month was strong, but this will raise some concerns that it reflects distress borrowing to offset the impact of falling disposable incomes.
Underlying fears over the housing sector will continue to undermine confidence in the UK currency. These reservations will limit the potential for Sterling gains even if overall global risk tolerances remain higher.
Swiss Franc
The Swiss currency weakened to lows around 1.0165 against the dollar and 1.5855 against the Euro in early US trading on Wednesday.
The franc moves were again influenced strongly by levels of risk aversion and equity market trends with initial enthusiasm for carry trades unsettling the franc as credit fears eased.
After a Wall Street rally attempt failed, the franc secured a corrective recovery later in US trading with a move back to 1.0080 against the dollar.
Source: VantagePoint Software, Market Technologies, LLC
Australian dollar
The Australian dollar found solid support above the 0.90 level against the US dollar over the past 24 hours, although rallies have been restrained.
International trends remained dominant and an underlying improvement in risk tolerances offered some backing to the Australian dollar. This support was initially offset by a drop in commodity prices, although commodity trends improved in US trading. The Australian currency pushed back to 0.9080 in early Europe as more robust equity markets helped underpin the currency.
Gains extended to 0.9150 in New York trading as the US currency was subjected to renewed selling pressure.
