Euro rebounded strongly after the release of much better-than-expected U.S. consumer index. The data also boosted the U.S. equities as investors are optimism the worst of the global recession is over and turned to be more risk appetite. Although earlier in the day North Korea said it has conducted the long accustomed nuclear test followed by firing three short-range missiles, the reaction to the market was limited, the dollar edged high but remained around its five month low against a basket of currencies at the moment.
Earlier in the day, euro weakened against the greenback after Britain’s Daily Telepgraph reported that Germany’s regulator BaFin questioning the health of the German banking system as the toxic debt of the country’s banks would get worse unless they join the rescue plan offered by the government. The single currency hit its intra-day low of 1.3860 in European session (eur/jpy traded as low as 131.47) even though German GDP data came in line with –3.8% Q/Q and –6.7% Y/Y and the Gfk data was same as expectation unchanged at 2.5 in June. However, it confirmed Germany’s economy shrank in the first three months of the year at its fastest rate since reunion in 1990. Euro has rebounded from there due to profit taking purposes ahead of U.S. opening and it erased most of its losses against the dollar on the stronger-than-expected U.S. consumer confidence data (54.9 versus forecast 42.0 in May from a upwardly revised 40.8 in April, the biggest one month jump since April 2003) . Eur/usd traded as high as 1.4005 in New York session. Investors tend to be more risk taking on the rally in U.S. stock markets. DJI ended the day up 196 points or 2.37%, Nasdaq up 58.42 or 3.45% and S&P up 23.33 or 2.63%.
Although the sterling fell in tandem with the euro to as low as 1.5778 in European
session, it also rallied from there to hit recent high at 1.5970 (gbp/jpy traded as high as 151.54) on the sharp U.S consumer data before retreating due to profit taking purposes.
The Canadian dollar hit a seven-month high at 1.1163 versus the greenback on upbeat U.S. data although it was pressured to 1.1356 by weak oil prices in European afternoon.
Economic data releases on Wednesday include Japan BoJ minutes for April, trade balance, Australia Westpac leading indicator, German CPI along with HICP, U.S. existing home sales and home price index. Treasury’s Geithner will make a speech.