There is something that remains unsettling about the return of risk appetite at the outset of a new week, yet it’s something that eludes description. The dollar is weaker and commodities are higher, yet the rebound for the euro after its biggest two-day decline has an air of worry about it. Crude oil and silver prices rebounded with vim and vigor as investors walked in refreshed from the weekend sensing that, no matter what devastation last week brought global growth continues unabated.
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U.S. Dollar – The dollar index recoiled from its highest since April 20 although at 74.59 remains comfortably above the day’s low. Safe haven buying last week propelled the greenback sharply higher as dealers dumped euros after interpreting the words of the European Central Bank as less-likely candidate for future monetary tightening. The dollar was also fuelled by an increase in the number of people looking for work during April as private sector employers added the most jobs during that month in five years. The dollar was also extremely well bid as grain, energy and metals prices slumped on fear that growing volatility would encourage more exchanges to follow the lead of the CME Group in lifting required margins for trading. Wholesale liquidation of commodities spurred the dollar.
Euro – The fact that the U.S. economic picture book ended on a positive note has played into the hands of those bullish of the single currency unit on Monday on expectations that further evidence will emerge to show the global economic recovery intact. Others are also starting to take apart the philosophy put into place after the ECB’s press conference and feel less inclined to agree that the central bank will hold off on rate increases on growth grounds. A report released Monday showed German exports rose to the highest value ever with trade rising at a far more brisk pace than expected. Export data surged by 7.3% on the month while import data rose by 3.1%. The euro snapped back its worst two-day performance against the dollar in three years rising to $1.4441 before regrouping beneath $1.4390.
Japanese yen – There appears to be less pressure on the Japanese unit this morning allowing the dollar to continue making headway against the yen to ¥80.75. There was no fresh data released over the weekend that would shape its path with most dealers accepting that data points have been recently scarred by the impact resulting from the earthquake and to a large degree is meaningless. The yen also lost ground to the euro and eased to ¥116.00.
British pound – The pound accelerated to the downside recently in New York weighed down by earlier news that the CBI had revised lower its growth projections for this year and next. The pound has been resilient to weaker data of late largely on account of a lackluster dollar, with many feeling that an interest rate increase from the Bank of England was inherently more likely than from the Fed. With a pace of inflation running at twice the Bank’s mandated 2% target, what many overlook is the weight of fiscal drag slowly starting to trickle down through the economy following the fiercest round of government spending cuts since the end of the Second World War. The CBI said that it now expects 2011 growth to be 1.7% followed by 2.2% next year. The pound tumbled to $1.6325 recently in New York accentuating earlier weakness. A Halifax housing reported also reinforced the poor picture surrounding the homes market where prices fell 1.4% during April.
Canadian dollar – An early morning stroll towards $1.0400 U.S. cents for the Canadian unit turned in to a brisk retreat back to the parking lot as housing starts for April came in on the light side of expectations. The local dollar eased to $1.0337 cents.
Aussie dollar – The Aussie was well ahead of Friday’s close at the start of the new week as dealers anticipated a healthy trade report from China due Tuesday to further underscore the point that global trade continues to point in the right direction. An ANZ index of job advertisements for April also rose for one-year straight bolstering expectations that last week’s RBA warning over higher interest rates will come good. The Aussie nevertheless eased on the back of a rebound in the greenback during early New York trading to stand at $1.0733 U.S. cents having hit $1.0786 overnight.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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