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Market Review - 11/06/2010 21:43 GMT

Dollar gains on concerns over economic recovery

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Despite falling for 3 consecutive days versus the euro, dollar gained on Friday after the release of much weaker-than-expected U.S. retail sales data, rekindling concerns that global economic recovery remained fragile and prompted risk aversion activities.

Although the single currency ratcheted higher to 1.2153, the pair fell sharply to 1.2045 after the unexpectedly weak U.S. retail sales figures, retail sales dropped by 1.2% in May versus economists forecast of an increase of 0.2%. This was also the biggest and first decline recorded since the reading of -2.2% in September 2009, however, cross-buying in euro provided support to the single currency throughout the day as eur/gbp rose from 0.8210 to 0.8327 while eur/chf surged from 1.3816 to 1.3947 and the single currency rebounded strongly from said low in late NY session.

The British pound initially edged up to 1.4760 in European morning as traders braced for a better-than-expected U.K. industrial and manufacturing production data and active cross-buying in sterling lifted price initially. However, the data turned out to be weaker-than-expected and a wave of long liquidation sent cable sharply lower and sterling fell to as low as 1.4505 in NY afternoon before staging a minor rebound. U.K. industrial and manufacturing production in April came in at -0.4% m/m and 2.1% y/y (forecast was 0.4% and 2.2%) and -0.4% m/m and 3.4% y/y (consensus forecast was 0.5% m/m and 3.8% y/y) respectively.

Versus the Japanese yen, the greenback traded with a firm undertone in Asia and climbed to 91.79 on renewed cross selling in yen due to early rise in Asian stocks and European stocks. However, the pair briefly dipped to 91.20 in NY morning after the weak US retail sales figures. Despite the aforesaid retreat, the pair later rebounded on short-covering before moving sideways and ending the day at 91.67. On economic front, U.S. Michigan Consumer Sentiment Index rose to 75.5, higher than the economists' forecast of 74.5, from previous reading of 73.6.

Aud/usd and nzd/usd also gained strength in the late US session on improved risk appetite as DJI pared morning losses and turned into positive territory in NY afternoon lifted by gains in NASDAQ which rose by 1.12%. DJI rose by 0.38%, aud/usd climbed to 0.8507 and nzd/usd rose to 0.6912.

In other news, ECB's Stark told Reuters Insider that there would be no alternative to the euro for Europeans. Stark added the single currency is the future and said the debt crisis would not limited to the euro area of regions. Separately, Greek Prime Minister Papandreou said that 'We will pay our debt' and 'Greece's fiscal consolidation program is on track and will remain so.'

Meanwhile, China said it would keep on high alert on euro zone crisis but euro zone crisis helped China ease inflationary pressure as China's CPI accelerated to a 19-month high of 3.1% in May y/y.

Economic data to be released in next week include: New Zealand Retail sales , Japan Industrial prod'n, Japan Capacity utilisation , Swiss Combined PPI , EU Industrial prod'n on Monday, U.K. RICS house prices , Australia Reserve Bank's Jun Minutes , Japan BOJ rate decision , U.K. CPI, RPI , DCLG house prices , Germany ZEW index , EU Employment , Trade balance , U.S. Empire state mfg, Net LT TIC flows , NAHB housing mrkt index on Tuesday, Australia Westpac leading economic index , Japan BoJ Monthly Report , Machine tools orders , U.K. Claimant count , ILO unemployment rate , Swiss ZEW index , EU HICP , Labour cost , U.S. Building permits and Housing Starts , PPI , Capacity utilisation and Industrial prod'n on Wednesday, Swiss SNB rate decision , U.K. Retail sales , U.S. CPI , Current account, Real earnings , Jobless claims, Leading indicators on Thursday, Germany PPI , U.K. PSNCR and PS net borrowing , Canada Leading indicators on Friday.