Dollar rebounded strongly from the multi-month lows against the British pound and euro after monetary sources stated that Asian countries, China, Japan, India and South Korea, would continue to buy U.S. Treasuries even the U.S. may lose its AAA credit rating. In addition, the tumble in the European and U.S. stock markets urged investors to buy back the dollar as a safe-haven currency.
Although euro resumed its recent uptrend to 1.4339 against the greenback in Asian afternoon, the single currency reversed gain from the 2009 high and fell sharply on the remarks from the Asian U.S. Treasury buyers. Traders interpreted that was a supportive expression for the countries’ dollar-dominated assets as they possess half of the world’s currency reserves and weak dollar would reduce the value of their U.S. investment. Eurozone service PMI data came out at 44.8 in May, which was slightly better than the reading of 44.7 in April. However, euro area GDP posted the biggest decrease in the first quarter, contracted 2.5% Q/Q and 4.8%Y/Y, since the data were first compiled in 1995. The worse-than-expected data pressured the European stocks, FTSE 100 down 2.09%, CAC dropped 2.02%, while DAC closed off 1.74%, and surged demand for the less risky U.S. currency.
Cable also tumbled from its 7-month high of 1.6664 against the dollar on risk aversion in European morning. Investors shifted their risk attitudes from aggressive to conservative on the doubt of the recent economic recovery is able to support the substantial gains in higher-yielding assets. The British pound accelerated its weakness against the greenback after U.S. ADP employment in March decreased by 532,000 versus expectation of less 530,000 and the ISM non-manufacturing in May came out at 44 against the 43.7 in April showed the non-manufacturing activity in U.S. continued to contract. Gbp/usd hit intra-day low of 1.6243 in late New York afternoon before recovery partly due to the U.S. stock markets pared some early losses. DJI dropped 66 point or 0.75%, Nasdaq dipped 10.88 points or 0.59% while S&P closed down 12.98 points or 1.37%
U.S. crude futures and gold price tumbled more than 3.00% and 2.00% respectively after Fed’s chairman Bernanke said “don’t see inflation risk in near term.” The three commodity currencies, Aussie dollar, New Zealand dollar and Canadian dollar, fell sharply from their multi-month highs against the dollar. Aud/usd dropped from 0.8265 to as low as 0.7933, nzd/usd fell from yesterdays’ 0.6595 to 0.6270 while cad/usd rebounded strongly to 1.1119.
Data to be released on Thursday includes Japan business capex, Australia trade balance, U.K housing prices, BoE rate decision, eurozone retail sales, ECB rate decision, U.S. jobless claims, Canada BoC rate decision, building permits and Ivey PMI index.