ASIA/EUROPE FOREX NEWS WRAP
The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is down modestly on the day, having recovered half of its losses this week following dovish saber rattling from the Federal Reserve. Price action today has been largely dictated by what began on June 19, when the Fed suggested that it could wind down is QE3 easing program by mid-2014, given the recent improvement in the US labor market. From the low on June 19 to the yearly high set on Monday, July 8, the USDOLLAR rallied by +4.74%.
The optimism surrounding the US Dollar was dispelled quickly yesterday after the Fed’s June meeting Minutes showed the policymakers remained split over the timing of when to end QE3, and then at a policy speech after the US cash equity close when Chairman Bernanke said that tapering QE3 wouldn’t mean the Fed’s accommodative policy stance would change. This is important because it highlights the distinction between “tapering” and “tightening”: the Fed has merely indicated that it will slow, not stop, its easing measures.
It is of little surprise that the other majors, berated by the US Dollar since mid-June, have made a strong comeback. In fact, since Monday’s high, the USDOLLAR is now off by -1.69%, and was down by as much as -2.19% overnight. The Australian Dollar has posted modest gains following an improved June Australian labor market report, while the Japanese Yen has garnered favor following the Bank of Japan’s policy hold earlier today.
Taking a look at European credit, peripheral yields have jumped on the day while core yields have fallen; putting upward pressure on Italian- and Spanish-German spreads (typically a sign of Euro-Zone sovereign debt crisis stress). The Italian 2-year note yield has increased to 1.662% (+9.2-bps) while the Spanish 2-year note yield has increased to 2.072% (+7.3-bps). Likewise, the Italian 10-year note yield has increased to 4.476% (+3.2-bps) while the Spanish 10-year note yield has increased to 4.838% (+4.9-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 10:45 GMT
CHF: +1.11%
GBP: +0.85%
CAD: +0.79%
EUR:+0.75%
NZD:+0.68%
AUD:+0.57%
JPY:+0.47%
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