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The euro is mostly lower against majors.
Written by article default Tuesday, 22 June 2010 18:00
Market OverviewThe euro is mostly lower against majors after coming under pressure on Monday following Fitch Ratings' downgrade of French banking giant BNP Paribas to AA- from AA.
Asian hedge funds quickly reacted to the announcement by buying the euro, resulting in a spike in the single currency to USD1.2355 from USD1.2316. A stronger Yuan is seen as beneficial for the global economy as it helps to contain inflationary pressures in China, and is also positive for share prices and risk-sensitive units such as the euro.
The euro moved in a similar fashion against the yen; initially rising to JPY112.47 from YEN111.96m after the PBOC announcement, before falling to YEN111.78, lower than its level at YEN112.15 overnight.
Traders in Asia said several Chinese banks were behind the dollar buying against the Yuan, amid speculation that the Chinese central bank could be encouraging buying to reinforce the perception that its latest promise to increase the Yuan’s flexibility means two-way fluctuations.
The Pound hit fresh June highs above USD1.4900 going into Europe but fell back quickly on profit taking and Euro linked weakness. June UK Right-move house prices improved 0.3%. GBPJPY touched noted resistance at YEN136.
The Australian dollar was down late Tuesday in line with weaker equities as dealers began to look towards U.S. economic numbers due later, which some expect to remind the world's largest economy remains in a weak state.
Market expectation
Looking ahead, the euro may resume falling if it fails to retain a boost from the PBOC's moves, as lingering European debt woes are still negative for the European currency, dealers said.
Existing home sales and manufacturing numbers in the U.S. will especially be in focus, while dealers are also looking out for what is expected to be a tough U.K. government emergency budget. The Federal Reserve's Open Market Committee also begins its two-day meeting.
In the U.K., investors await the budget speech and sterling is likely to consolidate against major rivals until then. Risk aversion remains a detriment to sterling, while the U.K. coalition government is tipped to take aggressive measures to tackle the budget deficit.
European stocks are expected to open lower Tuesday, following lackluster sessions in Asia and on Wall Street.