What’s Happening With Currencies – October 27, 2011
Risk tolerance has skyrocketed on the session following the announcement of the proposed EU rescue plan. With the provisions seemingly aggressive, traders are happy to sell the US dollar short in the morning hours. As a result, the Australian dollar has led gainers on the day, vaulting higher by more than 2% – with the Euro returning to above 1.4100. Economic data in other regions of the world have been positive – lending to the optimistic market sentiment.
1. Eurozone leaders finalized a proposed plan of action against the region’s financial crisis. The plan includes an expansion of the EFSF to about 1 trillion euros, while maintaining ECB bond purchases in the secondary market. Haircuts were also raised to 50%, which was approved by both sides.
2. US GDP made a better than expected gain in the third quarter. According to the US Commerce Department, US economic growth was higher by 2.5% annually. The figure vaults over second quarter results of a 1.3% rise.
3. US jobless claims rose in comparison to estimates for the week. Expected to gain by 401,000 in the week ending October 22nd, the US Labor Department reported 402,000 for the period. The less volatile 4-week moving average rose to 405,500.
4. CBI retail sales in the UK fell less than anticipated, shining some potential light on the British economy. In October, the survey’s balance reading improved to a -11 from September’s -15 – boosted by an expected sales component of +4. The subcomponent reading was the highest since the summer.
5. In an 8 to 1 vote, Bank of Japan policymakers kept the country’s overnight interest rate the same while increasing the bank’s credit and asset purchasing program to $724 billion. The enlargement was needed to combat a strengthening yen on the heels of a European crisis.
6. The Reserve Bank of New Zealand additionally kept rates unchanged last night, as policymakers noted severe downside risk to Europe’s current situation and falling consumer inflation in making the decision. The subsequent comments have sparked some consideration that the RBNZ may consider a rate cut early next year.
7. The announcement of a European plan has also boosted buying in US equity markets. The Dow Jones Industrial Average is now higher by 2.1%, trading at 12,118.20. Meanwhile, the S&P 500 has jumped up by 2.35% to 1,271.20.