Aussie dollar – The Aussie embraced the warmer risk-on waters finding buyers more apt to take on board the compensation of a 4.75% short-rate for holding the unit. The currency rose versus the dollar to buy $1.0575 from Monday’s closing level at $1.0504 cents marking a session slide of 1.5%. The Aussie managed to rally as stocks and commodities rebounded from back-to-back declines, while ignoring further downgrades for Chinese growth. As Premier Wen Jibao strikes to calm domestic price pressures through higher interest rates, at least four investment houses have lowered their GDP forecasts in recent days for Australia’s biggest trading partner.
Japanese yen –For a second day the yen lost out to the greenback although the circumstances are different Tuesday. Rising risk aversion Monday sparked a move into the dollar, while today the risk-shoe is on the other foot, but this had had the impact of boosting demand for dollars over the yen once more. The dollar is reaching for Thursday’s highs and recently traded at ¥82.10.
British pound – More bad news for the pound today, but the investors seem inclined to revel in the riskier tone rather than punish the pound, which buys $1.6161. The government reported the largest public borrowing requirement of any April at £10 billion since records began in 1993. A drop in revenue and an increase in spending remains the opposite of what Chancellor Osbourne needs if he stands any chance of keeping the budget deficit on track. Moody’s also responded to an earlier government warning “that banks that fail in the future should not expect capital injections from the public purse” by drumming up a list of 14 banking names likely to suffer once no longer under the government’s wing. Moody’s raised the likelihood of a downgrade for those names and added a degree of anxiety for those bullish of the pound. Bank of England Markets Director Paul Fisher sounded more dovish than the central bank’s Chief Economist Spencer Dale when he reiterated that the recovery was short of traction and was yet to be convinced that further easing was unwarranted.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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