Dollar slipped versus a basket of currency except yen on Wednesday as solid earnings reports encouraged confidence about the outlook for the global economy, causing worldwide stock markets to rally and boosting demand for higher-yielding assets. In addition, according to the minutes of the Fed’s June 23-24 meeting that the Federal Reserve Board members expected economic growth would resume in the second half although the economy remained vulnerable. The Fed raised 2009 U.S. unemployment forecast to 9.8%-10.1% (previous 9.2%-9.6%) and raised 2009 GDP forecast to –1.5%-1.0 (previous –2.0%-1.3%). The policy-makers opted to hold on expanding the existing $1.7 trillion asset purchase program as the effects of further asset purchases, especially on Treasury securities, on the economy and on inflation expectations were uncertain. DJI soared 256.72 points or 3.07%, Nasdaq rallied 63.17 points or 3.51% and S&P jumped 26.84 points or 2.96%.
Euro extended the rise against the greenback from last week’s 1.3832 low to as high as 1.4135 after the Fed minutes as earnings optimism and U.S. upbeat data undermined safe-haven demand for the dollar. The Empire State manufacturing index rose to -0.55 from -9.41, much higher than the consensus forecast of a reading of -5.00. U.S. industrial production data which decreased by 0.4% in June versus economists’ forecast of 0.6% drop. The data indicated that manufacturing sector in U.S. had nearly recovered from the recession in July.
Britain’s jobless rate hit a 12-year high at 7.6% in May while the number of people claming jobless benefits rose by 23,800 in June, its smallest increase in a year. The data was mixed and the British was briefly dipped to around 1.6330/35 after the data, however, as market’s focus shifted to firmer U.S. data and the increased risk appetite of investors lifted sterling with other riskier such as Australian dollar and New Zealand dollar. The British pound touched an intra-day high of 1.6470 after the better-than-expected Empire State data.
Earlier in the day, Bank of Japan left the overnight call rate target unchanged at 0.10%. The Japanese yen weakened against high-yielding currencies on Wednesday as safe-haven demand declined. Euro, aussie and sterling rose against the yen from 130.49 to 133.40, 74.12 to 75.99 and 152.44 to 155.16 respectively. Dollar strengthened the yen from 93.25 to 94.46. The International Monetary Fund maintained its forecast for a record 6.0% contraction in Japan’s economy this year and said there are signs of stabilisation. IMF also said the current value of yen was consistent with medium-term fundamentals.
Data to be released on Thursday include New Zealand CPI, Japan BOJ minutes, Switzerland ZEW index, U.S. weekly jobless claims and Philadelphia Fed survey.