Foreign Exchange Market Update
April 23, 2014
Indicative Interbank spot sell rates only as of 08:30 AM PST.
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The U.S. dollar fell after new-home sales dropped 14.5 percent to a 384,000 annualized pace, Commerce Department data showed today, lower than economists’ prediction. London-based Markit Economics said its preliminary index of U.S. manufacturing dipped to 55.4 in April from a final reading of 55.5 the previous month.
U.K. 10-year government bond yields rose to the highest since 2010 relative to their French counterparts amid diverging outlooks for monetary policy in Britain and the euro area. The extra yield investors demand to hold benchmark 10-year gilts instead of German bunds was near the widest since 1997 as minutes of the Bank of England’s April meeting showed officials provided an upbeat assessment of the economy. European Central Bank President Mario Draghi said this month policy makers were “unanimous” in their willingness to use unconventional measures to fend off the risk of falling consumer prices. The pound weakened 0.4 percent to 82.41 pence per euro after appreciating to 81.98 pence yesterday, the strongest level since Feb. 28. Sterling dropped 0.2 percent to $1.6786.
The euro rose the most in two weeks versus the dollar as manufacturing and services in the currency bloc expanded more than economists forecast, damping bets the European Central Bank (ECB) will further ease monetary policy. The euro advanced 0.3 percent to $1.3844 at 10:11 a.m. New York time, after touching $1.3855, the highest since April 17. The shared currency fell 0.1 percent to 141.55 yen, snapping a six-day gain.
The Australian dollar slumped the most in more than a month after a report showed inflation was less than analysts forecast. The Reserve Bank of Australia said this month inflation is expected to stay consistent with its average annual inflation target of 2 percent to 3 percent over the next two years. The Aussie slid 1 percent to 92.76 U.S. cents after declining 1.1 percent, the biggest decline since March 19. New Zealand’s currency fell before the central bank is forecast to raise interest rates as traders bet increases are already priced in. New Zealand was the first developed country to lift borrowing costs since 2011 when it raised its official cash rate to 2.75 percent on March 13 from 2.5 percent. The Reserve Bank of New Zealand is forecast to boost the benchmark to 3 percent today after predicting following last month’s increase that it will need to rise by about 2 percentage points over the next two years to contain inflation. The kiwi, as the currency is known, fell 0.3 percent to 85.75 versus the greenback to trim its gain this year to 4.4 percent.
Bank of Canada’s forecast last week for a “gradual strengthening” of the world’s 11th largest economy, when it projected growth of 2.3 percent this year from 2.0 percent in 2013. The country’s recovery hinges on an upturn in exports and investment, the central bank said. Governor Stephen Poloz remained neutral on the direction of his next interest-rate move, saying he will downplay a quickening of inflation this year with companies still slow to spend. Canada’s dollar fell 0.2 percent to C$1.1048 per U.S. dollar at 10:31 a.m. in Toronto. One loonie, as the Canadian currency is known, buys 90.51 U.S. cents. Two-year yields declined to 1.06 percent, from 1.07 percent yesterday.
The Japanese yen rose the most in almost two weeks versus the dollar as sales of new U.S. homes unexpectedly plunged to the lowest level in eight months, damping bets the Federal Reserve will lift interest rates anytime soon. The yen rose 0.4 percent to 102.25 per dollar at 12:34 p.m. New York time, the most since April 10.
The Chinese yuan’s yuan touched the weakest level in 16 months after a private report showed the nation’s factory output is still contracting. A preliminary reading for the Purchasing Managers’’ Index for manufacturing was at 48.3 in April, up from a final 48 in March, Markit Economics reported today. The yuan closed little changed at 6.2376 per dollar in Shanghai, China Foreign Exchange Trading System prices show. It fell as much as 0.15 percent to 6.2466 earlier today, the weakest level since Dec. 14, 2012. The currency is down 2.9 percent in 2014, the worst performance in Asia, after gaining for a fourth straight year in 2013.
This market update is prepared by Cathay Bank for informational purposes only and does not constitute any form of legal, tax or investment advice, nor should it be considered an assurance or guarantee of future exchange rate movements or trends. This information is provided without regard to the specific objectives, financial situation or needs of any recipient. Cathay Bank does not make any representations or warranties about the accuracy, completeness or adequacy of this market update.