Better than expected housing data is helping the U.S. dollar regain it's footing against the majors. The dollar extended gains after a report showed U.S. single-family home prices rose more than expected in May, according to the Standard & Poor's/Case Shiller home price indexes.
This news was welcomed after the euro hit an 11-week high against the dollar in the overnight session as solid bank earnings lifted equities and encouraged investors to take on more risk.
Investors are drifting away from fears of a double dip recession, with the onset of a rate tightening environment, with a rate hike in India and one expected in New Zealand, flows are returning to higher yielding and emerging market assets and out of the dollar. There is a feeling in the market, despite the dollars reprieve that we will see it track lower against the majors in coming days.
The euro remained range bound, well supported by Germany's Ifo Business Climate Index for July which beat market forecasts. This data followed favorable eurozone purchasing manager surveys which helped support the euro yesterday.
Many banks have altered their long term forecasts to reflect higher euro levels over the next 3-6 months. The next target for the euro, which has risen close to 10% since it fell below $1.19 last month, will be $1.3125.
The British pound reached a five-month peak against the dollar following the release of robust UK retail sales data. A survey by the Confederation of British Industry showed monthly retail sales in July rose at their fastest pace in three years, beating analysts' forecasts although helped by a reweighting of the survey.
The Canadian dollar rose to 5-week highs against the USD after upbeat corporate earnings from both sides of the Atlantic whetted investor appetite for riskier assets. With no major domestic data scheduled for release out of Canada, investors will be focused south of the border.
As risk appetite returns to the market, the Japanese yen has taken a hit. Falling over 1% against the USD and to a 7-week low against the euro, Japanese officials are relieved by the profit taking and weaker yen.
Among perceived higher-risk currencies, the New Zealand dollar hit a six-month high against the U.S. dollar, the Australian dollar rose to an 11-week high. For the Aussie, analysts are focused on upcoming CPI figures for the second quarter due out tomorrow.
Kiwi investors await a 25 basis-point hike on July 29 when the Bank of New Zealand meets. The next policy meeting for NAB is on August 3.
Indications of Overnight rates:
10-Year Treasury Note Yield: 3.043%
Dow Jones Industrial Average: 10,516.58 -8.85
This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.