The dollar has performed an about face and is sharply lower across the board with market sources trying eagerly to pinpoint the move. On Tuesday there were significant rumors that a report written by the well-connected Medley Advisors group for its private clients was behind a surge in the dollar. The notion that the FOMC might take a step towards the exit was enough to put the dollar back on an equal footing with the view that the Fed was thinking similar thoughts as other central bankers. And while the dollar’s winning streak may not be over, it certainly fared a rude interruption midweek coinciding with the ECB allegedly checking interbank prices for Greek and Irish government bonds. Recent fears that the sovereign debt crisis would soon reemerge have certainly been served up and sufficiently so today to shake up proceedings.
Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc.
U.S. Dollar – A euro-rebound has sent the dollar clumping across the board and whether this is the root cause remains to be seen. The euro is up by 0.3% against the dollar, while the Swiss franc has gained almost 0.9%. Curiously the dollar is static against the yen at ¥82.65 while the Japanese unit is also weaker across the board. The dollar index is 0.3% weaker at 76.62.
Euro – The cost of government borrowing in Portugal rose as the Treasury attempted to issue debt at an auction where fewer willing investors stepped up to buy. Perhaps investors are more reluctant ahead of talks later in the month between EU officials aimed at finding a resolution to the debt crisis. The benchmark Portuguese yield rose to a record on Wednesday and was a cause for further euro selling ahead of data for German industrial production in January. The report showed a strong 2.5% monthly advance with a decent backwards revision. The 1.8% year-on-year change improved on an annual December decline of 0.6%. The euro touched bottom at $1.3856, where it last traded before the ECB dropped its policy bombshell last week. Following stories that the ECB was sniffing at Irish and Greek issues, the euro has risen back to the black on the day touching $1.3941. Against the yen the euro is still trying to creep past its October highs but stands at ¥115.05 on Wednesday.
British pound – As the Monetary Policy Committee starts its two-day monetary decision-making meeting, it was served up evidence of a tightening labor market. Consultant KPMG’s index of full-time job placements as reported by employment agencies rose to 62.7 from 58.2 to its strongest in 10 months. An index reading above 50 represents expansion. The part-time component rose to its highest since May 2007. A separate BRC report showed shop prices rising at the fastest pace in more than two years as non-food stores passing on the recently imposed sales tax increase. The pound therefore had reason to rise in hopes for an interest rate increase, although the likelihood of such a move on Thursday remains extremely unlikely. The pound rebounded by a cent against the dollar having earlier reached a session low at $1.6139.
Aussie dollar – The Aussie was downbeat in the overnight session as it followed the lead of some weaker economic data. Chiefly, a 4.5% dip in home loan activity for January soured the mood while a 2.4% dip in consumer confidence over the prior year helped nail the daily low at $1.0060 U.S. cents. But as equity prices in Asia appeared steady and followed the U.S. lead of a strong performance on Tuesday, the Aussie found support, especially as dealers turned net sellers of the greenback. The Aussie recently rebounded to $1.0132 cents.
Japanese yen – The yen is lagging today perhaps as risk appetite steps up a notch supported by decent data reports domestically. Machine orders rose by 4.2% on the month in January stepping up from a 1.7% pace the month before. The data turns an annual decline into 5.9% jump in an encouraging sign of returning demand in Asia. The Economy Watchers’ survey was also healthy and pointed to an improvement in sentiment. The current conditions index jumped from 44.3 to 48.4 while the forward-looking outlook index remained in check at an unchanged 47.2. The positive data readings are a decent explanation for the yen’s lackluster daily performance as economic fears take a step back.
Canadian dollar –The loonie rose to its highest since November 2007 to buy $1.0333 at the session high as selling of the greenback rose to a crescendo. As investors pick on the U.S. dollar, a still-high price of crude oil and well-supported equity prices continues to support the Canadian unit. An index for January new home prices showed a monthly gain of 0.2% for an annual gain of 2.1%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
