Yen falls on improved risk appetite as global equities rise before gaining in late NY trade
The Japanese yen dropped against the dollar on Monday on risk appetite due to the strong gain in global equities as investors expected the Federal Reserve's policy announcement on Wednesday will show the central bank keeps its stimulus measures until the employment improves substantially, however, pice later fell in New York afternoon on renewed dollar' broad-based weakness.
Versus the Japanese yen, the greenback edged higher from New Zealand low at 94.12 in Asian session as Japan's equities pared early losses and turned into positive territory (Nikkei closed up by 346 points) and climbed to 95.12 in European morning before trading narrowly in New York morning. Later, the pair rose above 95.12 to an intra-day high at 95.22 in U.S. afternoon due partly to the comments from G8 leaders.
G8 leaders said 'economic prospects remain weak, downside risks have reduced after action in U.S., euro area and Japan; optimism in financial markets has yet to be translated fully into broader improvements in economic activity; monetary policy should continue to support recovery, be directed toward price stability based on respective mandates of central banks; Japan to be supported by near-term fiscal stimulus, bold monetary policy and new plan for promoting private investment; Japan will need to address the challenge of defining a credible medium-term fiscal plan; downside risk in the euro area have abated over the past year, additional reforms strongly needed; the U.S. recovery is continuing, budget deficit declining rapidly, still need for more stimulus progress.'
Despite euro's brief rise to 1.3357 in Australian morning on cross buying of euro versus yen, the pair retreated to 1.3319 in Asia but euro edged higher to 1.3358 in New York morning before pullback to 1.3328 in U.S. afternoon but the single currency later rallied to an intra-day high of 1.3382 near New York close on dollar's broad-based retreat.
Although the British pound rose initially to 1.5734 in New Zealand morning, offers below last Thursday's top at 1.5738 capped its upside and price dropped in tandem with euro to 1.5691 at Asian midday, however, renewed buying interest pushed the pair above 1.5738 to a fresh 4-month top at 1.5753 in New York morning but price retreated after the release of better-than-expected U.S. NAHB housing market index (52, better than the expectation of 45 and the first time above 50 since April 2006) and cross selling of sterling versus euro pressured the pound below 1.5691 to 1.5681 in U.S. afternoon before staging a strong rebound to 1.5739 in tandem with euro's firmness.
Earlier in Australia, the pound was supported after release of U.K. Righmove house prices which showed Britain's home asking prices rose 1.2% in June, this represented a sixth consecutive month of increase.
On the data front, U.S. Empire State manufacturing index in June came in at 7.84, better than the forecast of -0.50. Euro zone trade balance in April came in at 14.9B euros, less than the forecast of 18.5B euros.
In other news, German Finance Ministry spokesman Kotthaus said 'Greece has "reached a lot" under programme; Greece must stay on track on reforms; "right" for IMF to stay in Troika near-term.' Spanish budget minister Montoro said 'Spain is leaving the crisis behind.' ECB's Weidmann said 'short-term success in budget consolidation must not distract from necessary long-term deficit reduction.' EU's Rehn said 'Ireland, Portugal head to successful program exit; possible "precautionary arrangements" to aid exit.'
Data to be released on Tuesday:
RBA June minutes, Japan industrial production, capacity utilization, machine tool orders, U.K. PPI, CPI, RPI, ONS house price, German ZEW economic sentiment, ZEW current condition, EU ZEW economic sentiment, U.S. housing starts, building permits, retail sales.