RTTNews - Wednesday, the yen and the dollar tumbled against their key counterparts as the world stock markets jumped on renewed hopes about a global economic recovery.
The dollar and the yen are viewed as safe-haven currencies and tends to attract buying when worries about the global economy and financial markets flare up, but can come under pressure when such concerns recede.
Global stocks rose today as Goldman Sachs and Intel posted solid results in the second-quarter, getting the U.S. earnings season off to a bright start.
The news helped lift U.S. crude oil above $60 a barrel and drive three-month copper up 1.6 percent, but the dollar, yen and other less risky assets such as government bonds suffered.
Oil rose above $60 a barrel today, supported by data showing a fall in gasoline stocks and after strong company earnings lifted expectations for economic recovery.
U.S. crude for August delivery rose 87 cents to $60.39 a barrel at 5:30 am ET and Brent rose $1.08 to $61.94.
Investors and policymakers are anxiously looking for other big U.S. banks, such as Citigroup Inc. and Bank of America Corp., which will be reporting earnings later this week..
The stock market in Japan ended in positive territory with marginal gains today. Technology related stocks advanced following better-than-expected results from Chipmaker Intel. However, financial stocks declined after the Bank of Japan lowered the forecast for the year 2010. Profit taking following yesterday's rally also trimmed gains as traders preferred to adopt a wait-and-watch approach ahead of earnings in the U.S.
The 225-issue Nikkei Stock Average gained 7.44 points, or 0.08 percent, from Tuesday to 9,269.25. On the other hand, the broader Topix index of all First Section issues on the Tokyo Stock Exchange was down 2.20 points, or 0.25 percent, to 866.37.
Today, the Bank of Japan retained its key interest rate, while at the same time extended its special funding measures for three months to facilitate corporate financing.
The Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1% as expected. The last change in rate was a 0.10% cut in interest rates at the bank's December 2008 meeting.
The Board also stood united in extending the overnight purchases of commercial papers and corporate bonds to December 31, 2009 from September 30. Special funds-supplying operations to facilitate corporate financing were also extended till December 31. At the same time, the central bank will continue the U.S. dollar funds-supplying operations till February 1, 2010.
The yen that closed yesterday's trading at 130.67 against the euro fell to a 1-week low of 131.71 during early deals on Wednesday. The next downside target level for the Japanese currency is seen at 133.9.
Euro area annual inflation turned negative for the first time on record in June, the Eurostat confirmed today. Final report from the statistical office showed that the consumer price index or CPI dropped 0.1% year-on-year in June after remaining flat in May. A year earlier, inflation was 4%. On a monthly basis, consumer prices rose 0.2% in June.
The yen jumped to more than a 1 1/2 -month high of 127.04 against the euro on July 08 after a report showed that Japan's machine orders unexpectedly fell for a third month in May, stoking concern the Japanese economy will struggle to emerge from its worst postwar recession.
But the euro rebounded on the same day on hopes for a recovery in the recession hit German economy. Reports showed last week that Germany's industrial output rose at its fastest pace in almost 16-years and exports grew in May.
The euro-yen pair extended its uptrend this week and has gained more than 3% from a 1 1/2 -month low hit last week.
In early trading on Wednesday, the yen slipped to an 8-day low of 153.65 against the pound. This may be compared to yesterday's close of 152.70. If the yen weakens further, it may likely target the 155.4 level.
The number of people claiming Jobseeker's Allowance benefit in the U.K. increased 23,800 to 1.56 million in June, the Office for National Statistics reported today. This was the smallest monthly rise in the claimant count since May 2008 and was much smaller than the expected increase of 41,200.
The yen surged up to a 7-week high of 146.81 against the pound last Wednesday. The Bank of England's decision to continue its asset purchase plan on Thursday helped the U.K. currency to bounce back from a 7-week low.
The Bank of England kept its quantitative easing target unchanged at 125 billion pounds, surprising markets which had expected the central bank to expand the total by 25 billion pounds.
The central bank also left its key interest rates unchanged at 0.5 percent, as widely expected.
But the pound weakened again on Friday as U.K.'s factory gate prices fell at its fastest pace in almost eight years, while input prices recorded its biggest fall since 1997, raising deflationary concerns in the British economy.
However, after hitting a 5-day low of 147.20 against the yen on Monday, the pound showed strength and it has appreciated 4% thus far.
The yen declined to a 1-week low of 86.72 against the Swiss franc in early deals on Wednesday. On the downside, 88 level is seen as the next target for the Japanese currency. At yesterday's close, the franc-yen pair was quoted at 85.98.
A report by Switzerland's Federal Statistical Office said the retail trade turnover dropped 1.4% year-on-year in May, in both real and nominal terms. During the month, the steepest fall in turnover was in clothing, footwear, by 9.5%.
The yen has lost 3% against the franc after it reached a new multi-month high of 83.99 on July 08.
The yen weakened against the dollar after hitting a high of 93.27 at 2:55 am ET Wednesday. Currently, the dollar-yen pair is worth 93.75, compared to Tuesday's New York session close of 93.53. The next downside target level for the Japanese currency is seen at 95.4.
Extending last week's 4% gain, the yen soared to a 5-month high of 92.48 against the dollar on Monday on optimism about the global economy's recovery prospects.
However, amid positive analysts comments on the financial sector, U.S. stocks surged up on Monday, which in turn pushed yen down.
The yen weakened further against the dollar yesterday and touched a 6-day low of 93.78 on the back of strong global stock markets.
During early deals on Wednesday, the yen dropped to an 8-day low of 60.23 against the NZ dollar and a 1-week low of 74.87 against the Australian dollar. If the yen falls further, it may likely target 61.0 against the kiwi and 76.7 against the aussie. The kiwi-yen and the aussie-yen pairs were worth 59.83 and 74.22, respectively at yesterday's close.
Against the Canadian dollar, the yen slumped to near yesterday's 11-day low of 82.83 in early deals on Wednesday. This may be compared to Tuesday's closing value of 82.57. On the downside, 84.5 is seen as the next target level for the yen.
During early deals on Wednesday, the dollar plunged to a 5-day low of 1.0792 against the Swiss franc. The next downside target level for the dollar is seen at 1.075.
Amid the releases of the U.S. June retail sales and PPI reports, the dollar spiked higher against the franc yesterday and reached a 6-day high of 1.0941 at 2:00 pm ET. But the dollar pared its gains thereafter and at New York session close, the dollar-franc pair was quoted at 1.0883.
Thus far, the dollar has declined more than 1% against the franc.
The dollar that closed yesterday's trading at 1.3972 against the euro fell to a 6-day low of 1.4072 in early deals on Wednesday. If the dollar weakens further, it may likely target the 1.415 level.
The dollar tumbled to a 1-week low of 1.4073 against the euro on July 09. Although the dollar advanced on Friday, it has been showing weakness since the beginning of this week. The dollar has dropped 1% against the euro thus far this week.
In early deals on Wednesday, the dollar plummeted to a 12-day low of 1.6410 against the pound. If the dollar slides further, support is seen at the 1.651 level. The pound-dollar pair was worth 1.6327 at yesterday's close.
The dollar has been in a downward channel against the pound after it reached a 1-month high of 1.5986 on July 08. Since then, the dollar has lost 3% against the U.K. currency.
Traders are now likely to focus on the North American session, in which the U.S. Labor Department will release its consumer prices report for June at 8:30 am ET. The consensus estimates call for a 0.6% increase in the consumer price index and a 0.1% rise in the core consumer price index that excludes food and energy.
At the same time, the results of the New York Federal Reserve's empire state manufacturing survey is slated to be released. The headline general business conditions index for July is expected to come in at -5.
The industrial production report of the Federal Reserve is due out at 9:15 am ET. Economists estimate that industrial production declined 0.6% in June, while capacity utilization is expected to come in at 67.9%.
The Federal Reserve is scheduled to release the minutes of its June 24th-25th meeting at 2 pm ET.
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