Dollar and the Japanese yen declined against most of their counterparts after Federal Reserve Chairman Ben Bernanke said the global economy recovery is at hand and U.S. existing home sales rose in July for a fourth straight month, the 7.2% rise M/M for July was the strongest in 10 years reduced the safe-haven appeal of the U.S. dollar and yen. Usd/jpy rebounded strongly from 93.42 to 94.72 and usd/chf dropped from 1.0656 to 1.0553 in New York morning.
Bernanke gave a clearest signal at a symposium in Jackson Hole, Wyoming on Friday that ‘economic activity appeared to be leveling out, both in the U.S. and abroad, and the prospects for a return to growth in the near term appear good.’ However, he warned that ‘critical challenges’ remain with unemployment rates only declining gradually from its peak. The recovery will be sluggish as U.S. consumer demand remains weak as the labour markets is still soft, he added.
Euro advanced against the greenback on Friday as the better-than-expected data out of Europe added more credence to the views that the region is on the track to recovery and the pace of recovery may be more quickly than previously estimated An index of the German services industry rose to 54.1 in August, from 48.1 in the prior month. The French manufacturing index increased to 50.1 this month from 48.1 in July. Readings above 50 indicate expansion. Euro rose from 1.4209 to a two-week high of 1.4377 against the dollar as the upbeat U.S. housing data and Bernanke’s comments improved risk appetite and dented dollar’s safe-haven appeal. However, profit-taking pushed the single currency to around 1.4275/80 before rebounding on the back of the strength in U.S. shares. Cross buying in euro also helped to lift the pair as eur/jpy rallied from 132.90 to 135.48 and eur/gbp rose to as high as 0.8700 in late New York trade.
The British pound ended the day with little change versus the greenback, price rallied to a one-week high of 1.6625 after the release of better-than-expected U.S. housing data and Bernanke’s speech before retreating strongly in New York session. On the other hand, sterling tumbled to a multi-week low versus the euro as the jump in eurozone service sector and manufacturing activity helped to lift the single currency.
Oil rose nearly $1 towards $74 a barrel to settle at a 10-month high on Friday. The Australian dollar, New Zealand dollar and Canadian dollar, known as the three commodity currencies, advanced versus the greenback on the back of strong oil prices. Aud/usd strengthened from 0.8216 to 0.8396, nzd/usd gained from 0.6713 to 0.6868 while usd/cad tumbled from 1.0944 to 1.0762 before stabilising.
The Japanese yen weakened versus higher-yielding currencies as U.S. data bolstered optimism about the global economy and reduced demand for yen as a safe-haven asset. Eur/jpy rallied from 132.90 to 135.48, aud/jpy jumped from 76.86 to 79.14 and gpb/jpy rose from 153.58 to 156.56.
Data to be released next week include eurozone industrial orders, Canada retail sales, U.S. Midwest manufacturing data on Monday, German GDP, export and import data, U.S. consumer confidence and home price index on Tuesday, Japan CSPI, export and import data, trade balance, German import price index, Ifo index, U.S. durable goods orders, new homes sales on Wednesday, New Zealand trade balance, export and import data, German Gfk data, U.K. CBI distribution trade, U.S. GDP, PCE Q/Q, jobless claims on Thursday, Japan manufacturing PMI, household spending, CPI, unemployment rate, U.K Gfk survey, GDP, eurozone business climate, economic sentiment, Switzerland KOF indicator, U.S. personal income and consumption, PCE index M/M and University of Michigan survey, Canada current account on Friday.