TM:Euro hits 7-week high, dollar hampered by soft data
LONDON, Feb 19 ― The euro touched a seven-week high against the dollar today, with the greenback struggling in the wake of more soft economic data and news that foreign investors had been heavy sellers of US assets.
The euro rose as high as US$1.37735 (RM4.5414) during Asian trading, its strongest level since January 2, and was last trading flat at US$1.3757, with equity markets offering investors little direction.
Yesterday’s New York manufacturing and US housing data were the latest numbers out of the United States to disappoint investors, increasing pressure on the dollar.
The numbers bolstered the case for the Federal Reserve to be patient in its tapering of its huge bond-buying programme, ahead of today’s release of minutes from its January policy meeting when it opted to trim asset buying by another US$10 billion.
The data also pushed Treasury yields lower, with the yield spread between 2-year Treasuries and German 2-year bunds down over the past week, offering less support to the greenback.
Against a basket of major currencies, the dollar index fell as low as 79.927, its lowest level this year, before recovering to trade down 0.1 per cent on the day at 79.966.
“It (the weak US data) is certainly in the background. There’s been a period of nearly three weeks where US data has come in pretty consistently below expectations,” said Simon Smith, FxPro’s head of research.
“It’s not as obvious as previously that saying the Fed would taper quantitative easing ... is decidedly dollar bullish.”
Equity flow gap
Perhaps even more telling for the long run, Treasury figures showed overseas investors had sold almost US$120 billion of US assets in December.
Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, noted that the net outflow from US equities over 2013 has amounted to a huge US$214 billion.
In contrast, the euro zone attracted inflows into stocks of €111 billion. At the same time, the euro zone enjoyed a record current account surplus of €216 billion in 2013, while the United States ran up a deficit of almost US$400 billion.
“That the euro was the strongest major currency in 2013 is easily ― with all the benefit of hindsight ― explained by this current account and equity flow gap,” Ruskin said.
“For USD strength to broaden and also encompass the euro, a turn in the ‘equity gap’ is one precondition.”
The yen rebounded from yesterday’s falls, which were prompted by the Bank of Japan’s decision to extend and expand a scheme to promote bank lending.
The dollar was 0.2 per cent lower against the Japanese currency at ¥102.16, with options expiries at the 101.50 and 102 yen levels, said one London-based trader.
Betting on dollar-yen was one of the biggest hedge fund trades for the start of 2014, and with the dollar having finished last year at ¥105.275 the trade is now showing sizeable losses.
The euro was also down 0.2 per cent at ¥140.55.
Dealers are also keeping a close eye on China’s central bank after it drained funds from the money market yesterday.
The People’s Bank of China (PBOC) is trying to engineer a gradual upward shift in the cost of money to encourage companies to deleverage and discourage high-risk shadow banking activity.
Investors are anxious in case the tightening goes too far and hurts economic growth, concerns that have periodically put pressure on currencies across the Asian region.
The Australian dollar, whose economy is closely linked to China’s, was a tad lower at US$0.9021 after recent gains. ― Reuters
