Friday January 14, 2005 - 10:54:19 GMT
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Euro Mugged while Yen Above the Fray
Everybody wants a lower euro. Jean-Claude Trichet wants it. George Bush wants it. John Snow wants it. Most importantly the world’s dealing desks - eagerly eyeing the psychologically important 1.3000 level chuck full of stop orders - want it. So it comes as no surprise that in tonight’s European session the euro is coming under pressure despite the record US Trade Balance deficit reported this Wednesday and decidedly mixed US economic data yesterday.
The euro started to weaken after George Bush reiterated that he was “prepared to deal” with the twin deficits while St. Louis Federal Reserve Bank President William Poole noted that, “at some point the measured language will come out of the statement '', suggesting that future rate hikes may be higher than the present steady rate of 25bp increases every month. Jean Claude Trichet added to the jawboning by saying that the Asian governments must adopt a more flexible currency regime. The comment was interpreted as a warning to BOJ to refrain from intervention and an appeal to BOC to expedite the loosening of the yuan/dollar peg.
Net result of market action was lower euro but a steady yen causing EUR/JPY to tumble over 150 points in the last 24 hours. The yen also found some support from most recent economic data which hinted that Japan’ s economy may be rebounding from last year’s slowdown caused by rocketing oil prices and contracting global demand. The most impressive number of the night was the much larger than expected increase in Machine orders (19.9% vs. 3.3% expected) fuelled by renewed demand for consumer electronics. The healthy growth in capital investment should translate to faster GDP growth in the next 2 quarters.
Not all is well in the Land of Rising Sun as the Eco Watchers survey, which polls “man-in-the-street” respondents registered the lowest readings of the year with the outlook component printing at 44. However, if business demand continues to pick up, the survey numbers may be simply a result of lagging consumer attitudes of more positive economic changes to come.
FX Spot Overnight
- EUR breaks 3100 after authorities comments drive it down
- JPY comes back to 102.60 on positive Machine Order data
- GBP continues downward path on rate, political worries
- CHF above 118 on dollar strength
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