Despite falling in NY session on Monday due to renewed cross-selling in euro versus yen, good buying interest at 1.1900/10 area contained euro's weakness in Europe on Tuesday. Despite climbing to 1.2010 in NY mid-day on speculation of SNB's intervention, renewed selling pushed euro lower to 1.1921 before edging higher in late NY session. Earlier in May, SNB's President spelled out the policy: 'We will not allow that the euro zone problems and an excessive rise in the franc linked to them will lead to deflation in Switzerland.'
In addition, the news of Switzerland's lower house of parliament had rejected a bill which was aimed to hand over the names of thousands of alleged U.S, tax dodgers to U.S. authorities possibly triggered a sudden massive sales of eur/chf, sending the cross pair to 1.3785. The pair fell to a fresh lifetime low of 1.3746 in U.S. session and then rebounded briefly but strongly to 1.3899 on short-covering due to talk of SNB's intervention.
Versus the Japanese yen, the greenback initially rose to 91.92 in European morning but the pair retreated from there on renewed risk aversion as European equities pared early gains and turned into negative territories. Although the greenback rebounded briefly to 91.69 after new Japanese leader Naoto Kan said that weak yen would be positive for Japan's exports and economy, the usd/jpy pair fell sharply to 90.84 in N.Y. mid-day before staging a strong rebound on firmness in U.S. stocks. Despite early choppy trading, DJI staged a strong rebound and closed the day up by 123.49 points at 9939.98.
Earlier, Federal Reserve Chairman Ben S. Bernanke said ' The U.S. recovery is moving at a 'moderate' pace and the Fed will raise its benchmark interest rate from a record low before the economy returns to full employment or inflation surges'. Bernanke also said the U.S. economy recovery of U.S. would be strong enough to avoid a double dip recession. In addition, Naoto Kan said that public finances had worsened because the government could not raise taxes. Kan indicated that keeping up current size of spending would push Japan's public debt above 200% of GDP and restoring Japan's fiscal health would be crucial for economic growth.
The British pound ratcheted higher in Asia on Tuesday as short term speculators bought cable after the release of stronger-than-expected BRC UK May retail sales (+0.8% vs previous reading of -2.3%). The pair hit 1.4530 in European morning but cable tumbled from there after rating agency Fitch called Britain's fiscal finances as 'formidable challenges'. Sterling then remained under pressure and tumbled to 1.4346 in N.Y. mid-day before rebounding strongly.
Commodity currencies also rose as firmness in U.S. stocks boosted risk appetite. Aud/usd rose to 0.8286 from 0.8082, nzd/usd climbed to 0.6685 from 0.6572 and usd/cad fell to 1.0470 from 1.0611. In addition, gold rose again and hit a fresh record high of 1251.60 an ounce on Tuesday.
Economic data to be released on Wednesday include: U.K. N'wide Consumer Confi., Japan Machine orders, Australia W'pac consumer confi., U.K. Trade balance,U.S. Beige Book report and Wholesale inventories.