by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar was unable to strengthen back below the 1.48 level against the Euro on Friday and retreated to lows around 1.4860 in US trading before consolidating around 1.4825.
There were no significant data releases and dollar confidence remained extremely fragile following the negative data releases seen on Thursday. There were also reports of increased credit card problems which undermined sentiment. The housing data will be watched closely on Monday for further evidence on US economic trends with investors on high alert over recession conditions. Markets will also continue to monitor Fed comments on monetary policy.
Confidence in the financial sector remained weak with further rumours of debt write-downs while there were continuing fears over ratings downgrades for the bond insurers. Following the weak US data, the dollar is finding it more difficult to secure safe-haven buying support even when risk aversion increases.
The Euro-zone PMI manufacturing and services-sector indices were both at 52.3 for February which will provide some relief over near-term economic trends, especially as the services-sector index weakened sharply for January.
The industrial orders data was less favourable with a decline of 3.2% in December which pushed annual growth down to 2.1%. There will continue to be unease over Euro-zone trends and there is likely to be further pressure on the ECB to consider a second-quarter interest rate cut.
The dollar weakened to lows around 107.20 in Asian trading on Friday, but was able to resist further technical declines and was around 107.25 in early Europe on Friday.
Out-going Bank of Japan governor Fukui warned that the economic risks had increased, although he was still optimistic that growth would continue. There was some evidence of political stresses surrounding the appointment of a new Governor in March and this is likely to have a small negative impact on the Japanese currency.
Global economic fears will remain a key market factor and there is scope for increased capital repatriation ahead of the fiscal year-end. Volatility levels were still slightly lower which should lessen the risk of strong upward pressure on the yen.
Sterling found support weaker than the 0.7550 level against the Euro on Friday and edged stronger towards 0.7530 in New York. The UK currency also probed resistance levels above the 1.97 level against the US dollar before settling around 1.9675.
The UK currency is still gaining some support from the solid batch of data seen over the past week which has curbed expectations of a further near-term Bank of England interest rate cut. Underlying sentiment remains frail which is limiting buying support with fears that consumer spending trends will not be sustainable given the high debt burden.
The Swiss currency strengthened to highs beyond 1.0850 against the dollar and 1.61 against the Euro on Friday.
There are important background fears surrounding the US bond insurers as they battle to combat ratings downgrades. The latest data also recorded a further decline in asset-backed commercial paper which illustrates the fact that underlying credit-related stresses are persisting.
In this environment, there is unlikely to be aggressive Swiss franc selling with the currency securing defensive support.
The Australian currency has remained firm, but has been unable to take full advantage of US dollar vulnerability with resistance evident above the 0.92 level against the US currency.
The Australian yield support has increased and there are still expectations that the Reserve Bank could increase interest rates again. These positive influences are being offset by increased fears over the global economy. Capital repatriation back to Japan will also tend to undermine the Australian currency.
Relentless negative dollar sentiment allowed the currency to push higher in US trading with some further support from firm commodity prices, but the currency retreated back to 0.9205 from highs around 0.9250.