With strong Chinese data and gains in equities buoying optimism that the global economy is recovering, the US dollar fell to a one-year low against a basket of currencies. The negative dollar sentiment however did not have any affect for US government debt. Three auctions this week worth $70 billion went well alleviating fears that the appetite for US government debt may be dwindling. On the data front, the Labor Department said US import prices jumped 2% in August, twice what analysts had forecasted, mainly due to the cost of rising oil while export prices rose 0.7% in August. Data from the University of Michigan Survey indicated consumer sentiment rose to 70.2 in September, the strongest in three months.
The euro continues to rally against the dollar as European share prices boosted appetite for risk amongst investors. In addition, the euro rally was supported by strong Chinese economic data in August, which suggests China's recovery was on a solid course.
The British pound extended gains vs. the dollar for the fourth straight day as demand for riskier assets continue to rally. In addition, yesterday's decision for the Bank of England to keep monetary policies unchanged suggests the UK economy may be stabilizing. The pound also drew strength from a small rise in weekly UK department store sales, suggesting domestic consumer demand may be recovering.
The Japanese yen continues to strengthen against the dollar as investors' strong risk appetite continues. The yen strength was also supported by a rise in Japanese consumer confidence and Q2 GDP was revised to +0.6% quarter over quarter. Though the yen has rallied vs. the dollar, some analysts feel that the yen strength may reflect the repatriation of profits by Japanese exporters ahead of the end of the first half of the Japanese fiscal year.
As oil prices remain steady at $72 a barrel, the Canadian dollar strengthened vs. the US dollar. Data from Statistics Canada said prices of new homes unexpectedly rose 0.3% in July, signaling the housing market may be improving as the economy emerges from recession.
The Australian and New Zealand dollars hovers a little shy of 1-year highs against the weakening US dollar after robust Chinese economic data helped boost demand for commodity linked currencies such as the Aussie and the Kiwi. China is the second biggest importer of Australian commodities behind Japan.
10-Year Treasury Note Yield: 3.325%
Dow Jones Industrial Average: 9,630.35 + 2.87