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Posted by HY Markets on Tuesday July 20, 2010 12:34 am
Forex
–The euro retreated on Monday from a two-month peak against
the dollar as investors said the currency was overbought ahead of
European bank stress test results due next week. The yen struggled
overnight after Japan's ruling party suffered a stinging defeat in a
weekend parliamentary election but recouped its losses during North
American trade. Details of the stress tests on 91 European banks are
due on July 23 as the European Union seeks to restore confidence in the
sector. A recent string of weak U.S. economic data has raised
speculation the recovery may be losing momentum, hurting the dollar.
Those fears also helped the yen recover its post-election losses, as
the currency tends to rise when investors grow averse to risk and
unwind trades financed with borrowed yen. The euro hit a two-month high
above $1.27 on Tuesday after a smooth Greek treasury bill auction eased
some concerns about Europe's debt crisis and took the sting out of
another credit rating downgrade for Portugal. Sterling rose on Tuesday,
shaking off early losses as investors speculated that data showing
stubbornly high UK inflation would add fuel to the argument that
interest rates may have to rise. Despite the slide, year-on-year CPI
stayed above the BoE's 2.0 percent target rate. It recovered from a
slide to $1.4949 on Monday, its lowest since the start of the month,
after ratings agency Standard & Poor's warned that the UK remained
in danger of losing its triple-A rating due to its large debts.
Markets, however, still expect growth in the U.S. economy to outpace
that of its counterparts in Europe and Japan, which should continue to
support the dollar against the euro. And on Wednesday, the euro hit a
two-month high and the U.S. dollar fell against the yen after the
Federal Reserve's minutes of its last meeting showed policy makers were
concerned the U.S. recovery may be slowing. The Federal Open Market
Committee minutes weighed on the greenback which had fallen earlier in
the day after data showed U.S. retail sales declined for a second
straight month. Strong U.S. corporate earnings being released this week
encouraged investors to seek higher-yielding currencies, including the
euro, but have not helped the greenback as some investors see them as a
lagging indicator of economic health. Sterling soared to a 10-week high
as better-than-expected UK employment data added to speculation the BoE
may have to start thinking about raising interest rates. The U.S.
dollar fell broadly on Thursday and the euro soared to a two-month high
above $1.29 as soft inflation and manufacturing data added to concerns
about the strength of the U.S. economy. The euro stepped back after
touching a two-month high versus a broadly weaker dollar on Friday as
investors bet that gains supported by rising European money market
rates were overdone. A private survey showing U.S. consumer sentiment
weakened in early July to an 11-month low added to negative sentiment
on the greenback and drove the dollar to a seven-month low against the
yen.
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