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| Sterling and Dollar Rally After China Lifts Rates and Portugal is Downgraded Posted: 05 Apr 2011 05:11 AM PDT
The US dollar rallied across the board after Moody's slashed the credit rating of Portugal. The lone exception is versus sterling following a significantly stronger than expected services PMI. The pound is by far the strongest performer during European trading. China also raised interest rates 25bp. Market participants will be turning towards the US with the release of the ISM-Non Manufacturing PMI and the Fed meeting minutes. After Moody's Investors Service downgraded the sovereign credit rating of Portugal the euro slumped while the dollar rallied. The credit rating was lowered to Baa1 from A3 and Moody's says the European peripheral nation could face a further drop in its credit rating. The move by Moody's does not come as a big surprise as this brings Moody's in line with Fitch Ratings who downgraded Portugal on April 1st. Following the downgrade the euro slumped to a daily low at 1.4158 after opening at 1.4192. Versus the Swiss franc the EUR/CHF moved as low as 1.3053 from 1.3112 and is now trading at 1.3094. A stronger than expected UK services PMI brought strong bids to sterling. The survey rose 57.1 in March from 52.6 in February and the GBP/USD climbed to 1.6249 from 1.6116 before settling back at 1.6225. The pair looks on its way to the next resistance level at 1.6400. The Australian dollar is off its all-time high for the second consecutive day. The declines come following the RBA holding interest rates steady coupled with a sharp drop in the trade balance. During the month of February the country was a net importer as the trade balance fell to a -0.21B deficit from a 1.43B surplus. Adding to the Aussie dollar's misfortune was this morning's Chinese interest rate hike. While monetary policy tightening was expected and largely priced into the market it remains a setback for Australia as China is Australia's largest trade partner and has a 23.1% share of Australian exports. A vast majority of these exports are mining products such as iron ore and coal. Traders may find viable entries long into the AUD/USD at the 1.0250 support level off of the February high. This afternoon traders will be following the ISM Non-Manufacturing PMI at 14:00 GMT. Expectations are high for the report that could show the seventh consecutive rise in the data. Fed meeting minutes are also due out at 18:00 GMT and may show further disputes between the hawks and the doves over US monetary policy. The EUR/USD may decline further as Thursday's ECB policy decision nears. A retracement target from last week's low to yesterday's high comes in at 1.4115. Below that stands the low from last Friday's payrolls release at 1.4060. To the upside the 1.4280 level should cap any short term gains. |
| Posted: 05 Apr 2011 01:04 AM PDT
As the market awaits the ECB rate decision, the dollar has come into focus with an increase in Fed speak. The greenback received moderate support late yesterday after Ben Bernanke said inflation is rising moderately and an increase in inflation expectations due to rising commodity prices would force the Fed to take necessary action should price increases prove to be non-transitory. While yesterday's comments are no different from previous congressional testimony given by Bernanke, the market took this as a signal the Fed will address the loose monetary policy the central bank has held in place since 2008. Today's Market Events: GBP – Services PMI – 8:30 GMT EUR – Retail Sales m/m – 9:00 GMT USD – ISM Non-Manufacturing PMI – 14:00 GMT USD – FOMC Meeting Minutes – 18:00 GMT |
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