The dollar stabilized on Thursday and could climb further as the investors loosened their bullish bets in high-yielding currencies following no hint of future monetary easing by the US Federal Reserve. Sterling slipped against the U.S. currency to the depths of three-months at $1.6017, getting rid of by selling at reduced prices following quite the reverse raise in the hopes of offering more stimuli by the Bank of England.
The dollar index .DXY, which follows the greenback in comparison to 6 major currencies, rose by 0.6 % at 75.21. 76.020, the June 16 high was being targeted by many market players, with several of them recommending that more gains in the months to come would be possible through a break, through that level.
The scenario is more or less analogous to last summer when the US yield curves were flatter & the dollar gained strength in an environment which was filled with a strong disinclination to take risks, according to chief of currency strategy at ING, Chris Turner. He added that till the time the Fed seems to take any action or the US data raises, the trend is likely to continue.
A second round of monetary stimulus, christened QE2 (Quantitative Easing 2) was flagged by Ben Bernanke, Chairman of the Fed, who was prompted by feeble U.S. data & the risk of deflation during August 2010. It resulted in a fall in the dollar while the high-risk assets soared high. The market has been flooded with dollars by the quantitative easing program worth $600 billion and it has driven the investors towards funding leveraged carry (investment) trades with their wealth.
The expectations of a few investors say that QE2 at its close in the coming next week could result in the loosening of those dollar-funded trades. Though the estimates of future economic growth were slashed on Wednesday but the Fed restated that reinvestments from principal payments obtained from its holdings would be continued with the US economy soon seeing the dawn of recovery on its way to 2012.
Taking into consideration other places, the survey of a Chinese purchasing manager, indicative of factory-sector growth was close to a halt in June in spite of pressure on prices easing feeding risk aversion trade. The fall in commodity-linked Australian dollar was 0.4 % to $1.0531, against the safe-haven currency, with the difference being more than of a cent in comparison to Wednesday’s high.
The dollar’s latest trade saw a rise by 0.3 % at ¥80.54 yen, closing at a session high of ¥80.65. Its price also rose in comparison to the Swiss franc, and its last rise recorded was 0.2 % at 0.8414 francs.
When the dollar was suddenly picked up across the board by Asian sovereign players, it was mentioned by some traders, while previous short positions formed on the basis of expectations from the Fed to give its consent to another round of QE were reversed by some investors.
EURO ZONE GROWTH
The euro saw a drop of 0.5 % touching $1.4275 in comparison to the dollar, slowed down by weaker beyond expectations flash PMI (Private Mortgage Insurance) data obtained from France. PMI data from Germany, which displayed the slow-moving manufacturing sector, in Europe’s economic powerhouse for the month of June, while services gathered momentum, couldn’t rouse much reaction from the single currency.
Clouds of developments in Greece continued to hover around the euro with the focal point of the markets being the summit of European leaders on Thursday & Friday. All efforts would be made by the policymakers to convince financial markets & the Greek people regarding their feasible plan for assisting Athens re-achieve fiscal stability. As per market participants, investors were looking forward to selling the euro on rallies.
An examination of the $1.4460 level, the 61.8 % movement in the opposite direction of the $1.4700/1.4075 down has so far not been possible by the single currency and this is what continues to be an obstruction in the move toward $1.4500/20, according to CMC Markets analyst, Michael Hewson. The Euro reached $1.4071low of June 16, a fall from $1.4696 high of June 7
The Euro was pushed further low in comparison to the Swiss franc by low-risk bids riding on the back of expanding secondary bond spreads. The last down recorded in the single currency was 0.4 % at 1.2000 francs, nearing the drop of 1.1946 francs maximum low on June 16.
