EUR/US$
The dollar was unable to sustain gains through the 1.5850 level on Tuesday and the Euro continued to probe new record highs. The dollar was also again unsettled by the strength of oil prices.
US existing home sales edged lower to an annual rate of 4.93mn for March from 5.03mn the previous month. There was an increase in inventories while prices fell over the year.
Despite a small monthly increase, there was a decline in recorded house prices over the year. There is some tentative evidence that a trough has been reached and the Fed will be reluctant to cut interest rates aggressively next week, but confidence surrounding the housing sector will remain frail.
There were reported comments from bank sources on Tuesday that the ECB is still considering moving to tighten policy with a further increase in interest rates unless inflation slows. The sources also stated that there were some similarities with the 1970s when there was a combination of high inflation and slow growth. Following the ECB comments, the Euro pushed to a fresh record high near 1.6020 before consolidating just below the 1.60 level later in US trading.
The persistently strong ECB comments will continue to underpin the Euro in the short term, although the impact will be lessened to some extent by the fears over growth.
In this context, the growth considerations will become much more important if there is a weak batch of data from the Euro area and the latest PMI data will be watched very closely on Wednesday for further evidence. The Euro will also be hampered by further unease over the German banking sector following a support package for the regional Duesseldorfer Hypothekenbank.
Source: VantagePoint Intermarket Analysis Software
Yen
The US dollar found support just below the 103.0 level in Asian trading on Tuesday with the yen again unable to secure any significant impetus from domestic trends.
Asian stock markets were generally weaker over the day which provided some degree of support to the yen, but overall measures of risk aversion were still at a lower level which lessened underlying demand for the Japanese currency in uncertain trading.
The US currency again dipped to below the 103.0 level in US trading, but the yen was struggling against the Euro with lows near the 165 level.
Sterling
Sterling found support close to 1.9750 against the dollar on Tuesday and pushed to highs of 2.00 in US trade as the US currency came under selling pressure. The UK currency was unable to sustain gains through the 0.80 level against the Euro, but was generally resilient given the underlying Euro strength seen during the day.
Bank of England Monetary Policy Committee (MPC) member Besley stated that price stability should remain the top priority and that the central bank should not react to external shocks unless they affect inflation. According to Besley, the mortgage support package would allow the bank to focus on price risks.
Besley has been a hawkish member of the MPC over the past 12 months, but the comments overall will increase speculation that the bank will be reluctant to cut interest rates aggressively in the short term.
The MPC minutes from April’s meeting, when the bank cut rates, will be watched closely for further evidence on the bank’s assessment of conditions.
Swiss Franc
The dollar was unable to hold above the 1.0120 level against the franc and retreated to test lows close to parity in New York trade before rebounding to 1.0040. The franc also found support close to 1.61 against the Euro and settled close to 1.6040.
European equity markets were generally weaker during the day and this helped strengthen the Swiss currency, although the impact was measured.
The trade account remained in comfortable surplus of CHF1.25bn for March and the robust export performance will provide some near-term support to the Swiss currency.
Source: VantagePoint Intermarket Analysis Software
Australian dollar
The Australian dollar has maintained a firm stance over the past 24 hours and held above the 0.94 level against the US currency in local trading on Tuesday. The currency has gained further support from the firm level of commodity prices over the past 24 hours and the impact from lower stock markets has been measured.
The consumer inflation data will be watched very closely on Wednesday and a firm figure would reinforce the possibility of higher interest rates. Nevertheless, the overall risks suggest that there will be a bigger reaction to a weaker than expected inflation number. US currency weakness helped sustain the Australian dollar close to 0.9450 in US trading.
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