EUR/USD started to climb higher at the European open reaching 1.4400 before sellers stepped in. The initial incentive came from a 'Telegraph' report citing the UN Conference on Trade and Development as backing the view that the dollar's role as the world's reserve currency should be subject to wholesale reconsideration. This, of course, only serves to fuel the discussion that has been underway from some time. It doesn't change the conclusion that the process of diversifying away from the USD hasn't really got going and due to lack of alternatives that it will take years, potentially decades, before there is any substantial change in the structure of foreign exchange reserves. Nevertheless, with stock markets still trading higher, risk appetite has remained on the upside promoting the better stance of the EUR, GBP and other 'risky' trades vs the USD.
The risk trade found further incentive from better than expected economic data. German exports managed a 2.3% m/m increase in July well above the median expectation of 1.2% m/m. This promoted the view that the recovery in the heavily export economy may continue into Q3. A rise in the Bank of France business sentiment also encouraged the view that the recovery remains in place. Best of all was the far stronger than expected UK production data this morning. Manufacturing production grew by +0.9% m/m in July compared with a median of +0.3% m/m, the data even better when considered in light of the upward revision to the June number (to +0.6% m/m). The widely held perception that the UK economy has been lagging that of Germany, France and the US made sterling particularly sensitive to good UK data. Cable, which had been trending higher on the back on the softer USD, surged to 1.6522 on the back of the UK data. EUR/GBP dived lower but still remains comfortably above the 0.8700 support.
The softer USD this morning encouraged gold prices to finally move above the USD1000 /0z level, the break higher seeing follow through to the USD1007.55 before profit-taking knocked it off its high. The AUD, NZD and the CAD have continued to rally vs the USD. The NZD has been the laggard of these three currencies following comments from Finance Minister English that it may take three to five years to achieve sustainable growth based on exports and investment. Australian PM Rudd noted that there were still major global economic challenges ahead. Having returned to levels not seen for a year yesterday, the AUD met with some resistance in the USD0.8620 level but is again edging higher. Similarly, while the uptrend in NZD/USD remains intact, some resistance is being seen at USD0.6970.
The Japanese government has kept its economic assessment unchanged for a second month but noted signs that the economy is picking up.
US consumer credit and ABC consumer confidence are due this afternoon.