The earlier in the week loss of confidence that saw stocks and commodities slump as the dollar soared is fast-reversing on Thursday. Risk appetite is firming up as dealers scour headlines emanating from Ireland on the growing likelihood of an imminent bailout package for the government as it struggles to contain the blood flowing from its battered banks. Also helping clear the decks today is a decline in the fear surrounding the potential actions of China where accelerating inflation to its fastest since 2008 is worrying investors into an early grave.
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Euro – The Irish Finance Minister said that discussions taking place at the central bank’s offices in Dublin with the EU could result in a deal that would see the Irish tap the European Financial Stability Fund and as the Governor Honohan also said earlier, that amount could be in the tens of billions. The euro is warming to the news and has improved against the dollar to a peak today at $1.3667 having reached a seven-week low midweek. The euro also firmed against the pound today to buy 85.32 pence while it rose too against the yen to ¥113.79.
British pound – British retail sales during October rose for the first time since July albeit less than had been hoped for, but thanks to the improving tone surrounding risk instilled buyers to lift the pound to $1.6030. The October gain of 0.5% left the annual pace of change 0.1% lower than one year ago thanks to a negative revision to the data series last month. Excluding sales of autos and fuel, the measure improved by 0.3% to stand 1.2% higher than a year ago.
U.S. Dollar – The dollar index lost ground steadily overnight and into the New York session to stand at 78.50 (-0.8%) ahead of initial claims data that is expected to show a mild 6,000 increase in claims for unemployment last week. Boston Fed Chief Rosengren defended the central bank’s decision to resume bond purchases by saying yesterday that without it the inflation and employment profile would have worsened.
Japanese yen – The Japanese yen continues to weaken marginally against the dollar and stands this morning at ¥83.35. Stocks in Asia were encouraged by signs of positive developments in Dublin, which if leading to the Irish government tapping the loan chest would reduce risk of contagion in the region. South Korean retail sales data was also extremely healthy indicating ongoing recovery in the region.
Aussie dollar – A positive approach to risk saw the Aussie respond with a near one cent rise against the greenback to 98.80 U.S. cents. The fears over further Chinese monetary tightening in response to rising food costs have calmed. Such fears were largely caught up in the tailwinds of European sovereign debt issues anyway. Yesterday the government noted that it may impose temporary price controls on what it called important daily necessities as well as production materials. Reserve Bank of Australia’s Deputy Governor Ric Battellino speaking on inflationary threats to the domestic economy said that the challenge from a resource-led boom was its careful and proper management in order to ensure sustainable growth.
Canadian dollar – The Canadian dollar is also better off today rising to the tune of gentle increases in a variety of commodity prices and an improved tone to risk appetite. The loonie today buys 98.19 U.S. cents.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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