WSJ:Dollar Up Across The Board; Focus Back On The Fed
By Clare Connaghan
The dollar gained ground across the board in European trading Monday as the focus turned back to U.S. monetary policy after China's economic growth data came in better than market participants has been expecting.
The greenback strengthened against the euro, pound, yen and commmodity-linked currencies of Australia, New Zealand and Australia after data showed China's economy grew 7.5% in the second quarter compared with a year earlier. Market participants feared the data would be much worse, after the country's finance minister seemed to suggest late last week that Chinese growth for the year as a whole could be under 7%, below the government's official 7.5% target.
"With no fresh wobbles from China, the market is focused back on Federal Reserve tapering watching," said Daragh Maher, a currencies strategist at HSBC Holdings PLC in London.
The dollar is being bought back Monday as the market reassessed U.S. Federal Reserve Chairman Ben Bernanke's comments last week that highly accommodative monetary policy is set to remain in place for the foreseeable future.
"The market got caught wrong-footed last week by Bernanke," said Mr. Maher.
Looking ahead, the big event this week is Mr. Bernanke's testimony before lawmakers on Wednesday and Thursday, with market participants closely scrutinizing what he says on both the rate outlook and the future of $85 billion-per-month bond-buying program.
Ahead of that, the focus Monday will be on the U.S. Empire business confidence survey for July and the June retail sales report due at 1230 GMT.
In other news, European financial markets shrugged off a downgrade to France's credit rating by rating firm Fitch Ratings on Friday. European stock markets moved higher, while yields on perceived weaker euro-zone countries edged lower despite the French downgrade.
In emerging markets, the Turkish lira got some respite from the recent selloff, after the central bank suggested that it is considering raising interest rates at its regular monthly meeting on July 23. The dollar fell to as low as TRY1.9308 against the lira, as central bank Governor Erdem Basci, appeared to change stance in his latest effort to support the Turkish currency, which fell to life-time lows last Monday of TRY1.9736.
"The CBRT bows to the inevitable... clearly indicating that it will hike the top end of the rates corridor, the lending rate," says Timothy Ash, head of emerging-market research at Standard Bank PLC.
"The CBRT is acknowledging by these actions that its prior strategy of using FX reserves to defend the lira simply was not working, and risked just blowing scarce reserves away," Mr Ash added.
At 1033 GMT, the euro was trading at $1.3023 against the dollar, compared with $1.3066 late Friday in New York, according to trading system EBS. The dollar was at Y99.96 against the yen, compared with Y99.26, while the euro was at Y130.195, compared with Y129.70. The pound was trading at $1.5052 against the dollar, compared with $1.5104 late Thursday in New York.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 75.31 from 75.012.
A summary of key levels for chart-watching technical strategists is below:
