Dollar dropped against the single currency on Wednesday as a rise in global stocks and upbeat manufacturing activity data in Europe and China reduced demand for greenback and yen as safe haven currency. In addition, the Group of Eight sources said that China has asked to debate proposals for a new global reserve currency at next week’s G8 summit in Italy and the issue could be referred to briefly in the summit statement.
Although the single currency re-tested 1.4000 level versus the dollar in early Asian trading, euro found good buying interest there as China purchasing mangers’ index for June rose to 53.2 from 53.1 in May, consolidating the fourth month in a row above the watershed mark of 50. Furthermore, retail sales in German, Europe’s largest economy, unexpectedly rose for a third month in May and the eurozone PMI for June rose to 42.6 from 40.7 in May indicating the eurozone manufacturing economy contracted less than expect. The data strengthened the case for the European Central Bank to keep interest rates unchanged at 1.00% on Thursday. However, ECB member Axel Weber said that eurozone economy will not return to growth before mid-2010 and the single currency eased from 1.4088 (European high). In New York morning, although U.S. ADP employment data in June came in worse than expected (-473K compared to economists’ forecasts of 393K jobs cut), euro rallied again versus the greenback as U.S. ISM index came in slightly better than expected (44.8 vs consensus expectations 44.0), showing U.S. manufacturing sector shrank in June but at a slower pace than during the prior month. The single currency hit session high of 1.4202 after the news on China requested a reserve currency debate at G8 before easing in New York afternoon. Investors tended to book profit ahead of ECB rate decision on Thursday and to see if it will offer more details of its plans to buy covered bonds, a quantitative easing measure intended to boost the economy.
U.K. Prime Minister Gordon Brown said the government will not publish a Comprehensive Spending Review setting out details of expenditure plans for the next 3 years. The British pound rebounded from intra-day low of 1.6381 to as high as 1.6546 versus the dollar in New York afternoon on the China news before easing as investors tended to stay sidelined and wait for the U.S. employment report which is due on Thursday. Economists expected the economy to shed 363,000 jobs in June after losing 345,000 in May.
Data to be released on Thursday includes Australia trade balance, U.K. house price, eurozone PPI, unemployment rate and ECB rate decision, U.S. unemployment rate, non-farm payrolls and jobless claims.