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Currencies Update: Feds move expectations steer the market
Written by article default Monday, 11 October 2010 07:43
A new chapter is now upon us after last week’s surprising ending. The market reacted with extensive volatility to the jobs report on Friday, where the strong drop in nonfarm payrolls was still countered with stable unemployment rate and rising private sector employment, and still supported the market with stronger expectations for a soon to be seen Fed action!The dollar lingers around its weakest levels this year as gauged by the dollar index; it lingers at the weakest in 8 months versus the euro and 15 years versus the yen. Expectations for more dollar flood in the market and for the feds to introduce the second round of quantitative easing keeps the lid on the dollar in this period, especially as investors discount a weaker than anticipated outlook.
With the FOMC minutes to be released this week, the market is anticipating a strong rhetoric from the feds regarding the measures and more hits on their deployment as Bernanke strongly hinted for the possibility for the feds to start a new round of asset purchases. The dollar index though started the week with an upside correction rebounding from heavily oversold areas to trade currently around 77.22 below the high set at 77.31 and off opening areas of 77.00.
The dollar gained grounds further and started the correction as the market grew wary over the annual IMF meeting in Washington that increased the fear over the extensive FX volatility where it was the center of talks in the meeting. Trichet also last Thursday expressed his worry over the extended volatility which helped trigger the downside correction for the euro as well.
Europe’s 16-nation currency declined versus the dollar today and currently hovering around 1.9337 after it failed to stabilize above 1.40 areas where it set the highest at 1.4011. The euro opened today at 1.3994 and so far recorded the lowest at 1.3914.
The market is jittery and with China surprising with a new move equities are feared to reverse the gains in Europe over recovery fears as China’s tightening offset the Fed optimism and feed through fear over the state of the global recovery.
China’s PBoC unexpectedly and temporarily raised the reserve requirements for six large commercial banks. The ratio will rise by 50 basis points for two months according to Reuters citing four unidentified people, while the PBoC declined to comment. The current rate is 17% for the biggest banks and 15% for the smaller ones.
The sentiment so far remains the same, and seemingly the dollar is the one on the rise and the correction is taking its toll amid the lack of major market movers, especially that the volume is expected to trim further with US banks on Holiday today in Columbus Day celebrations.
Sterling fell versus the dollar from the high recorded at 1.5961 and currently hovering midrange at 1.5940 off lows at 1.5912. As for the Japanese yen, it also lost grounds versus the dollar to currently trade around 82 areas off earlier lows at 81.36.