Resurgent Greenback Rises to Fresh Highs Overview: June 20, 2013 A resurgent greenback rose to fresh highs Thursday, clocking more than one-week peaks against the euro and yen, its strongest in two weeks against peers from Britain and Canada, and fresh 33-month highs against the Aussie dollar. The U.S. currency is enjoying a Fed-inspired makeover after the central bank yesterday penciled in a stimulus reduction for later this year and said its bond buying program could end altogether in about a year. Suddenly the outlook for world central bank policy has portrayed the greenback in a better light. As the Fed is seen easing off the accelerator, albeit slowly, interest rates in Europe may have yet to hit bottom, while Japan is seen only in the early innings of a multiyear campaign of aggressively loosening policy. With markets long hooked on the Fed’s super-cheap credit policies, stocks around the globe fell hard. Market sentiment was further sullied on news that Chinese manufacturing sank to a nine-month low in June. The greenback’s latest rally may have legs, given the greenback’s remarkably strong performance against the yen in the face of a market selloff. For the Fed to stay on the road to less action, it’s going to need the cooperation of better U.S. data. Consequently, investors today will closely parse data on jobs, housing and regional manufacturing. JPY The yen plunged to more than one-week lows against the greenback as the specter of less monetary activism from the Fed sent U.S. interest rates on an upward tear, boosting the dollar’s attractiveness. A game-change could be under way for dollar/yen. In recent weeks investors have flocked to the yen for shelter to ride out market volatility. World stocks took a plunge Thursday but this time investors chose the dollar over the yen. The yen’s broad underperformance Thursday amid a market selloff reinforced the yen’s weaker bias over the broader horizon. An outlook auguring less Fed stimulus and more Bank of Japan should lay the groundwork for longer lasting dollar gains. EUR The euro fell to 10-day lows against a resurgent greenback which benefited from the Fed’s brighter economic outlook and the specter of less monetary stimulus in coming months. A preliminary look at euro zone factories in June showed a slower pace of contraction with the purchasing managers’ index rising to 48.7 from 48.3 in May. The dollar is seen with an edge against the euro with the second half of the year only auguring a nascent euro recovery while America’s rebound is seen gaining increased momentum. The dollar also clocked 10-day highs against the Swiss franc after the Swiss National Bank held rates steady near zero and said the franc remained elevated. Norway’s crown sank to 10-month lows after the country’s central bank left rates steady at 1.50% and assigned a 50% chance of a rate cut at the next meeting on Sept. 19. GBP Among major currencies, sterling fared the best against the greenback after U.K. data showed a healthy rebound on consumer spending, a good sign for second quarter growth. The 2.1% (m/m) surge in retail sales in May was the fastest in three months, rebounding from a revised 1.1% (m/m) decline the prior month that was the weakest in a year. Growing signs of recovery have started to lend durable support to the pound by reducing pressure on incoming Bank of England Gov. Mark Carney to consider looser policy steps. AUD, NZD, CAD The trio slumped mainly on news that HSBC’s manufacturing purchasing managers’ index (PMI) for China moved to 48.3 in June, a nine-month low, from 49.2 in May which was already the lowest in seven months. Growth currencies are vulnerable to evidence of slowing growth in China, a key export market. The Aussie fell to fresh September 2010 lows while Canada’s dollar slipped to a two-week bottom. Disappointing first quarter growth from New Zealand saw the kiwi buck sink to one-year lows. The kiwi economy grew 0.3% (q/q) in the first three months of the year, half the 0.6% (q/q) rate investors had expected. USD The dollar remained on a higher perch against its rivals but it surrendered a gain or two on news of a bigger than expected jump in weekly jobless claims. Headline claims rose 18,000 to 354,000, above the 340,000 forecast and the prior week’s revised 336,000. But the more reliable four-week average held below the key 350,000 level while continued claims improved. Although the main headline number was a miss, the overall tone of the report was still consistent with a gradually improving job market. With light now seen at the end of the Fed’s rehabilitative tunnel, downside scope for the buck could prove limited. By Joe Manimbo, Senior Market Analyst
Posted on: Thu, 20 Jun 2013 16:59:44 +0000
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