by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar was unable to make any challenge on levels below 1.55 on Friday and weakened steadily to lows just beyond 1.5650 before consolidating around 1.5630.
The US currency was undermined by a renewed increase in energy and commodity prices during the day with crude reversing Thursday’s losses. The Sunday talks in Jeddah between the main oil producers and suppliers, arranged by Saudi Arabia, will be watched closely. A strong commitment to boost production and curb prices would tend to support the dollar on Monday while any lack of conviction would tend to undermine the US currency.
There were no significant US data releases during the day with the dollar unsettled by the weaker than expected manufacturing data the previous day. Attention next week will focus on the Federal Reserve FOMC meeting. The US currency will need hints over a more aggressive interest rate policy to make significant headway, although any US official comments on the US currency will also be watched closely.
European inflation concerns persisted with producer prices rising 1.0% to give a 6.0% annual increase. The European economic data will also be important on Monday with the key German IFO release and the Euro-zone flash PMI estimates released at the same time. Any major weakness in the data would reinforce a lack of confidence in the economy and would also increase pressure for the ECB to resist an increase in interest rates.
The dollar consolidated just below the 108.0 level in Asian trading on Friday as technical considerations were generally dominant.
The yen gained some support in New York as equity markets were subjected to significant downward pressure while fears over the financial markets persisted. The dollar dipped to lows around 107.20 and weakness in European bourses also provided some support to the Japanese currency.
The yen moves will tend to remain correlated strongly with degrees of financial-market stresses in the short term with some reluctance to engage in carry trades.
Sterling was unable to sustain Thursday’s advance against the Euro and weakened back to near 0.7920 as the dollar was subjected to significant selling pressure. The UK currency pushed to a high near 1.98 against the dollar, but was hitting selling pressure above the 1.9750 level.
Overall confidence in the UK economy will remain very fragile, but there will be some support from persistent speculation that the Bank of England will have to consider an interest rate increase.
Anecdotal evidence on housing and spending trends will be watched closely in the short term and suggestions of weakness would unsettle the UK currency, although uncertainty will be a key feature.
The franc found further support close to 1.62 against the Euro on Friday and strengthened to 1.6125 as equity markets weakened. The Swiss currency also pushed to near 1.03 against the dollar, but retreated from its best levels.
The franc will continue to be unsettled by Thursday’s National Bank decision to leave interest rates on hold at 2.75% and there will be further unease over Swiss growth prospects. Producer prices rose 3.9% in the year to May which will fuel further speculation as to why the central bank did not increase interest rates.
The impact will be offset by fears over the global economy which will trigger some defensive demand for the currency.
The local currency gained support on yield considerations with markets still scaling back expectations over the scope for higher US interest rates. There was also some interest in carry trades and the Australian dollar pushed to 0.9520 in early Europe on Friday.
The trend persisted in US trading with US currency weakness and gains in gold prices pushing the Australian dollar to highs around 0.9565 before a limited correction weaker. A sustained increase in risk aversion would still tend to unsettle the currency with commodity price trends liable to trigger further volatility.