Thursday, August 4, 2011

The U.S. Dollar and Euro jumped higher against the Yen

Previous session overview
After days of fretting publicly over the strength of the yen, Japanese authorities intervened in foreign exchange markets Thursday to let some air out of the lofty currency. 

The intervention wasn't unexpected, but the timing took some by surprise as it came at the outset of what was to be a two-day policy meeting by the Bank of Japan. It also came as the yen was holding steady against its rivals, even though Japanese officials had said repeatedly they were looking for signs of yen volatility or sharp, one-sided movements. 

The U.S. dollar and euro jumped sharply higher against the yen, with the greenback at JPY79.03 lately versus JPY77.13 before the Ministry of Finance's action. The euro was at JPY113.04 versus JPY110.72 just before the intervention. 

The dollar also rose against the euro and Swiss franc after Tokyo's dollar-buying. That move is sure to be welcomed by Swiss National Bank officials, who announced aggressive easing measures Wednesday only to see the dollar return to CHF0.7644 in New York trading, close to where it was before the announcement. 

The U.S. dollar was trading at CHF0.7769 on Thursday, up from CHF0.7702 late in New York.
The euro was lower at USD1.4289, from USD1.4322 in New York trade. 

The Australian dollar continued to probe its lowest levels since mid-July on Thursday, weighed by concerns the global economy is headed for a slowdown, while local data remains weak. At 0630 GMT, the Australian dollar was at USD1.0665, down from USD1.0747 late Wednesday and off a 30-year high of USD1.1080 last week. Against the Japanese yen, the Australian dollar was at JPY84.65, up from JPY82.885.
Market expectation
The USDSGD is trading at SGD1.2090 after breaking the SGD1.2100 resistance vs SGD1.2047 in early Asian trade as risk-sensitive Asian currencies take a hit given the uncertainty surrounding the global economy. Investors are increasingly focusing on how the developed economies, especially the U.S., perform, so there is some pull back in the market from what we saw in the morning when the Singapore dollar was higher, say dealers. They tips resistance at SGD1.2140 and support SGD1.2030.

While the expansion in the Swiss monetary base will increase liquidity, market analysts expect buying of francs to continue, perhaps even more so as data out of the U.S. continue to come in mixed or weak and global economic worries linger. 

European Central Bank President Jean-Claude Trichet is expected to speak Thursday after the ECB's rates-decision meeting, and markets will be focused on his remarks and whether any inflation deviation is on the way. The common currency continues to remain under pressure as well, as debt issues of peripheral nations, including Spain and Italy, persist. 

European stocks are expected to open higher Thursday, following a late rebound on Wall Street, as investors turn their attention to interest rate decisions from the Bank of England and European Central Bank.