Dollar and yen declined versus a basket of currencies on Monday as U.S. corporate earnings were not as weak as initially feared sparked a strong rebound in U.S. and European stock markets. Stocks were enjoying their best rally since June 25 after an influential bank analyst, Meredith Whitney, upgraded Goldman Sachs to “buy” from “neutral”. She also stated that Bank of America Corp. and JPMorgan Chase & Co could do well in the second quarter. In addition, U.S. Treasury Secretary Timothy Geithner said on Monday that there was a good chance the U.S. and other leading economics could grow later this year rather than face a double-dip recession, a prediction backed up by positive data from Asia. DJI rallied 185.16 points or 2.27%, Nasdaq closed up 37.17 or 2.12% and S&P jumped 21.92 points or 2.49%.
The single currency rose from an intra-day low of 1.3898 to as high as 1.4003 before easing in late New York trade as rally in stocks spurred speculation investors will increase holdings of higher-yielding assets. Furthermore, euro strengthened against the dollar was partly due to comments by European Central Bank President Jean-Claude Trichet who sounded a bit more upbeat about eurozone growth as he said that eurozone economy is expected to continue to decline in the second half of 2009 but at a slower pace than before. U.S. posted a smaller-than-expected budget deficits (-94.3B compared to consensus forecast of -97.0B), however, market's reaction to this data was somehow muted.
Earlier in the day, the British pound tumbled to as low as 1.6033 against the greenback as British newspaper Sunday Times report of a huge 13 billion pound write-off in bad loans by British clearer Lloyds bank. However, cable was able to recover all the intra-day losses and rose to an intra-day high of 1.6240 in late New York trade. Cross buying on sterling versus euro also helped as eur/gbp dropped from a five-week high of 0.8699 to around 0.8610/15. Bank of England Deputy Governor Charles Bean said on Monday that Britain’s economy has probably hit bottom but the road to recovery will be a long haul and stated that it might take some time for the quantitative easing program to work and for banks for stat lending again.
The Japanese yen weakened against high-yielding currencies on Monday on improved risk appetite after rising to a muti-month high of 91.73 in Europe. Euro, aussie and sterling rebounded strongly against the yen from 128.00 to 130.22, 70.78 to 72.85 and 147.19 to 150.99 respectively in late New York afternoon. The dollar also rose from a five-month low of 91.73 to 93.04.
Data to be released Tuesday include U.K. BRC retail sales, CPI, RPI, German Zew index, eurozone industrial production, Zew index, U.S. PPI and retail sales.