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Market Review - 10/12/2013 22:34GMT
U.S. dollar drops versus the Japanese yen on retreat in U.S. treasury yields
U.S. dollar retreated especially against the Japanese yen as U.S. treasury yields and stock markets eased on a growing view that the Federal Reserve will decide to scale back its economic stimulus unless more robust U.S. economic data coming out.
The greenback traded with a firm undertone in Australia on Tuesday and climbed briefly above last Tuesday's 6-month high at 103.38 to 103.40 in Asian morning, however, active profit-taking there together with cross-unwinding in Japanese yen (eur/jpy fell sharply to 141.29 after rising to a fresh 5-year peak at 142.18) capped dollar's upside and the pair retreated to a session low at 102.58 in New York. Japan Finance Minister Taro Aso said 'can't say if FY14 new bond issuance will exceed FY13 level.' Source from Kyodo told reporters that Japan plans 2-step tax increases for high income earners.
Euro continued last week's rally and maintained a firm undertone on Tuesday. The single currency rose to a session high at 1.3795 in New York before retreating on profit-taking together with cross selling in euro versus the Japanese yen.
ECB's Draghi said 'central banks should concentrate on price stability over medium term; must strengthen financial system by increasing capital, liquidity buffers; creation of banking union essential step in increasing resilience of euro area; high trust by citizens most important guarantee of central bank independence; central banks must get used to closer scrutiny, especially with use of non standard tools; credibility is closely connected to staying with mandate; ECB has consistently delivered on its price stability mandate; medium term inflation expectations remain firmly anchored; several reasons why situation in euro zone stability different from that of Japan 20 years ago; delivering price stability has been more challenging in recent years due to financial fragmentation in euro zone; ECB has gained time for other actors to play their part in delivering reform; crucial that European countries complete structural economic reforms.'
ECB's Makuch said 'does not see strong deflation pressures, does not see deflation ahead; ECB has enough tools to adjust policy if needed, no need to discuss individual tools; inflation to return toward target in longer term.'
The British pound continued Monday's rally due to sterling-supportive comments by BoE Governor Mark Carney in a conference at the Economic Club in New York. BOE's governor Mark Carney said 'concerned U.S. fiscal policies posing difficulties in short term without longer-term benefits; Europe situation vastly improved, still lacks dynamism stimulus; true recoveries beginning after core of system repaired; stimulus can create risks including in housing market; needs to provide a lot of stimulus to U.K.' Cable strengthened to 1.6468 in Asian morning on Tuesday and then retreated to 1.6420.
In other news, a senior Senate Democratic aide said 'the U.S. Senate is likely to vote next week on President Barack Obama's choice of Janet Yellen to be the next chief of the Federal Reserve.' Yellen, the Fed's vice chair, is widely expected to win Senate confirmation, which would make her the first woman to lead the U.S. central bank. Last month, the Senate Banking Committee approved her nomination on a 14-8 vote. Yellen would replace Fed Chairman Ben Bernanke when his term ends on Jan. 31.
Wednesday will see the release of Australia consumer confidence, machinery orders, domestic CGPI, Germany CPI, HICP, France current account and U.S. Fed budget.
