Pound soars on inflation projection

U.S. Dollar – The dollar weakened earlier Wednesday and traded beneath Monday’s weakest point. As crude oil prices put a dent in the recovery for the commodity rebound and as sentiment weakened towards the euro, the dollar index recovered to stand at 74.66 and as New York trading commences, the dollar is testing its best level of the day. The economic calendar is light today as investors prepare for initial claims and retail sales data later in the week.

Japanese yen – The dollar also burst to its highest in seven sessions against the Japanese unit and recently traded to ¥81.24. The weakening of the Japanese unit unusually coincides with a weaker reading for pre-market equity index futures and as crude oil tumbles to $102.78 in New York. There is a grain of risk aversion receiving some attention this morning in pre-market hours at least and that appears to be benefitting the dollar more than most in a move investors have not been accustomed to for a while. Typically ‘risk-off’ has tended to elevate demand for the yen at the expense of the dollar.

Canadian dollar – The Canadian dollar earlier rose to its highest in four sessions reaching $1.0487 U.S. cents as dealers favored the unit on rising risk grounds. The Canadian story was strengthened recently by the majority vote putting the Conservatives back into power. Finance Minister Jim Flaherty yesterday stated that he’d use a June budget to announce restoration of fiscal balance by 2014 at the same time as releasing planned tax cuts. The loonie pared its gains but remains higher on the day at $1.0455 cents.

Aussie dollar – The Aussie has also given up a hard night’s work that drove it to as high as $1.0888 and its highest in six sessions. Firm activity data out of China overnight reinforced the view that demand is likely to remain firm from its regional partner even though the world’s number-two economy has more work ahead in terms of taming inflation data, which also rose unexpectedly during April. The Aussie built on the recent words of the RBA, who’s Chief, Glen Stevens, said last week would need to ultimately act further on monetary policy in the face of rising inflation. Traders overlooked the impact of yesterday’s budget and chose to bring in expectations of rising interest rates that would benefit holders of the Aussie unit.

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.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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