EUR resilliant as USD could weaken
A largely uneventful day yesterday saw few major swings between the major currencies. The Main event of note was related to the Euro, falling from near a five- month high against the dollar after Ireland’s Central Bank published new estimates of the capital requirements of Irish banks. The bank puts the total cost of bailing out the country’s banks at around EUR 50bn under a ‘stress scenario’. Further, Anglo Irish Bank and Allied Irish Banks PLC may need as much as EUR 14.4bn in extra capital. The European currency also dropped after Moody’s Investors Service downgraded Spain, citing weak economic growth prospects.
Despite this, EUR/USD fell only half a cent, now largely recovered. Though much of the above may have been factored in already by markets, with the spectre of further QE looming forever over the US, this is further indicative of a market that is overwhelmingly reluctant to buy Dollars, even when events dictate this would normally be the case. The yen also rose to the strongest versus the dollar since the Bank of Japan intervention as Asian equities declined, spurring demand for the Japanese currency as a refuge. Indeed, September has been a fantastic month to be short of US Dollars. So far it has lost 6% of its value against both the EUR and Aussie Dollar, and over the last four weeks has fallen against every major currency. Central bankers appear to hold all the cards at the moment. The Reserve Bank of Australia merely needs to raise scepticism on expected rate rises by expressing concern on the current value of AUD, likewise the Bank of Japan can intervene further if necessary to offer support for the US Dollar. Meanwhile at the Federal Reserve building, every time an employee sneezes a tremor is felt on Wall St.
On the economic calendar this morning is the flash estimate of eurozone consumer price inflation for September. This is expected to show a rise in annual inflation to 1.8%, from 1.6% in August – the highest eurozone rate since November 2008. The Bank of England also releases its third quarter Credit Conditions Survey, which will give the MPC a steer on whether financial institutions plan to ease loan availability any further in the quarter ahead. In the US this afternoon, initial jobless claims data are expected to remain around the 460K level in the week to September 2010 after the 12K rise last week. The Chicago Purchasing Manager’s index is expected to show a dip, but would still be at levels pointing to solid growth.