Dollar and yen sparked by commodity weakness

Investors swept any remaining crumbs of comfort off the table and seemed more prepared to dig in against any reprisal terror attacks following the death of Al-Qaeda’s leader. Risk aversion was already evident in Monday’s trading as fading gains for benchmark equity indices were accompanied by rising costs of insurance against a pullback. Not helping matters on Tuesday is a tumble in commodity prices reinforced by slowing manufacturing activity in the world’s two leading economies.

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U.S. Dollar – The dollar index is making a brave move back to its highest in three sessions as risk aversion kicks-in with the index higher by 0.2% to 73.22. Pre-market equity index futures are trading below Monday’s weakest moment offering promise of an interesting session ahead. A factory orders report is scheduled mid-morning covering March data and is expected to rise by 2% following a February decline of just 0.1%. Any further weakening for risk appetite following bin Laden’s death could conceivably boost the dollar as riskier bets are pared.

Euro – The single European unit is also at its weakest in three sessions and trades at $1.4783 against the dollar having shed more than a penny overnight from its best level since July 2008. Producer price data for March was fairly much in-line and as such failed to boost any further the view that the ECB is likely to raise interest rates faster than currently expected. The 0.7% monthly increase stacks up in to an annual gain of 6.7% and builds on year-ago pressure by the slimmest of margins. The euro also slid by 0.9% against a rising yen where it recently bought ¥119.32.

British pound – The pound was devastated by a slide in the index for PMI manufacturing released earlier reversing five days of curious gains. The pound had gained at the dollar’s expense lately on the view that even if it’s a remote possibility, the Bank of England is likely to tighten its monetary stance ahead of the Fed. Today’s slide in the Markit Economics and CIPS manufacturing index to 54.6 was made all the worse on account of a negative revision to the March reading of 56.7. Today’s negative news for manufacturing helps put the pound back on an even keel with the dollar with dealers selling the pound to reflect that lack of advantage. The pound was also delivered a wooden horse in the form of a CBI retail sales survey, which despite its improved headline number showed the weakest outlook for sales in two years and confirms a recent slide in consumer confidence. The pound fell from its heady Monday peak of above $1.6700 to trade at $1.6467.

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