Euro fell to a 3-week low against dollar on Friday, as spreads between peripheral European and German government bonds widened, renewing concerns over eurozone peripheral debt.
Although the single currency ratcheted higher in Asia on active short-covering after 4 consecutive days of losses this week and briefly jumped to 1.2906 after the release of much stronger-than-expected German GDP data, euro then dropped to 1.2776 on renewed selling caused by worries over eurozone peripheral debt, as the spread between Spanish and benchmark German 10-year government bonds widened to 172 basis points, the highest since July 19, and the spread between 10-year Greek and German bonds went out to its widest since the ECB began the bond buying operation on May 10, and then fell further to an intra-day low of 1.2750 in late NY trading session. Eur/gbp fell below 0.8200 level to 0.8175 after meeting renewed selling at 0.8259.
German GDP came in at 2.2% q/q and 4.1% y/y versus the economists' expectations of 1.3% q/q and 2.4% y/y respectively.
Versus the Japanese yen, dlr enjoyed a day of respite and initially climbed to 86.19 in Australia on the news that Japanese Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa will meet as early as next week to discuss yen's strength and possible responses. Later, although dollar retreated to 85.56 on renewed risk aversion as Chinese Vice Premier Li Keqiang said China would not relax its policies aimed at curbing speculation in the property market, renewed buying interest sent price briefly above said 86.19 resistance to an intra-day high of 86.39 in NY morning before stabilising.
In other news, Kansas City Federal Reserve President Thomas Hoenig said that the Fed should not pour more cash into the U.S. financial system because doing so would risk overheating the economy. Hoenig also stated that U.S. deficit was not sustainable and there would be a price to pay.
Although the British pound ratcheted higher in Asia on buying by short-term speculators after remarks by UK insurance giant Prudential PLC CEO Tidjane Thiam who said he had rejected the idea Prudential would make a second attempt to acquire AIG's AIA Group's businesses (previous failed bid was worth $35.5 billion) and cable climbed to an intra-day high of 1.5680 in European morning, the pound fell in tandem with euro to 1.5573 before trading narrowly in NY.
On data front, U.S. CPI increased by 0.3% m/m and 1.2% y/y (versus the forecast of 0.2% m/m and 1.2% y/y) whilst core CPI rose by only 0.1% as widely expected. U.S. retail sale rose by 0.4% m/m, slightly below the economists' expectations of 0.5% rise. University of Michigan's survey showed the index on U.S. consumer sentiment rose to 69.6 (economists' forecast was 69.3) in early August from 67.8 in July.
Economic data to be released next week include:
U.K. Rightmove hse prices, Japan GDP annualised, GDP, GDP deflator, Tertiary industry index, EU HICP final, Empire state mfg, Net LT TIC flows, Foreign treasury buys, NAHB housing mrkt index on Monday, Australia RBA's August Minutes, EU Current account (euro), ZEW survey, U.K. CPI, CPI core, RPI, Germany ZEW index, U.S. Building permits, Housing starts, PPI, PPI core, Industrial prod'n, Capacity utilisation on Tuesday, Australia Westpac leading economic index, Japan Leading indicators on Wednesday, Japan All industry index, Machine tools orders, Germany PPI, Swiss Trade balance (chf), ZEW index, U.K. PS net borrowing, PSNCR, Retail sales, CBI industrial trend, Canada Leading indicators, Wholesale sales, U.S. Jobless claims, Philadelphia Fed survey, Leading indicators on Thursday, Canada CPI, CPI core on Friday.