Published On: Mon, Oct 22nd, 2012

Euro Reaches One-Month High Versus the Greenback

During the Asian trading session on Thursday, the euro rose to a one-month high versus the United States dollar. As Spanish bond yields fell, the United States released strong data from the housing market. China also boosted investor optimism with the release of stronger-than-expected economic growth in the third quarter.

On Wednesday, Europe’s currency rose 0.5 percent to $1.3140. This marks the euro’s highest level since the middle of September. It retreated slightly by Thursday morning to $1.3095

United States Dollar on the Rise

Housing reports in the United States showed that single family homes and apartments were created at their highest rates since the start of the recession. This positive news and a gain in yields on United States government bonds pushed the dollars to new one-month highs against the Japanese yen. The yen has been dragged down in recent days by expectations that the Bank of Japan is about to enact new stimulus measures. The United States dollar is presently trading at 709.22 yen while United States ten-year bond yields are above 1.80 percent.

Some analysts believe that the falling value of the yen is due to concerns over the Japanese export market. As China and Japan resolve their territory dispute, Chinese importers have ceased purchasing Japanese products. This drop in exports is expected to cause continued problems for Japan in the coming months. Potential easing measures by the Bank of Japan have only served to lower expectations regarding the yen. It has fallen for six days in a row versus the greenback. The United States dollar has gained a total of 1.2 percent during this rally. Most analysts believe that the greenback will have difficult breaking the 79 yen barrier.

As the euro has advanced, the dollar index fell to a one-month low of 78.935. This drop was reached on Wednesday and quickly recovered to 79.15. It is still close to the low of 78.601 it reached on September 14. Any further fall would take the index back to levels not seen since January of this year.

Euro at One-Month High

During the trading session on Wednesday, Europe’s currency gained to $1.3140. After this initial rise, it lowered slightly to $1.3095. This is the highest level for the euro in one-month. It also gained against the yen to 103.850 which is another one-month high. This higher level for the euro is close to a four-month peak it reached in September of 103.858.

The rising euro is fueled by expectations of a bailout for Spain. Policy makers in the European Union are meeting on Thursday to discuss bailout options for the European Union. Despite this meeting in Brussels, some analysts are still doubtful about the possibility of a Spanish bailout. Madrid has been exceptionally reluctant about enacting any bailout measures. Spanish government members have expressed worries about a bailouts impact on their nation’s image and potential austerity measures. When Greece went through a European bailout, they were forced to enact measures to get their economy under control. This austerity program was met with disastrous results and many in the nation protested the new measures. Spain has already had to sit through several protests as citizens decry the reduction in their pension benefits and health care.

Spanish ten-year bonds are currently at seven-month lows. On Thursday, Spain will be attempting to raise 4.5 billion euros through an auction of government debt. While this is occurring, the meeting in Brussels will be coming to an end. The two-day summit is not expected to produce any major advancement in the Spanish bailout process. Instead, the meeting is viewed as the first step toward a more integrated Eurozone and a single banking supervisor. The euro may test the peak it reached on September 17 of $1.3173 as investors gain hope of a potential financial aid package for Spain.

Aussie Gains

In Australia, the Aussie reached a two and a half week high. Better-than-expected data from China increased expectations for commodity markets around the world. Since Australian economy is driven by commodities, the currency gained in Thursday’s trading session. At its peak, it reached $1.0397 versus the greenback. Most recently, it stood at $1.0380 which is a 0.1 percent increase for the day.

Earlier in the month, the Australian dollar dropped to a three-month low of $1.0149. Lowered third-quarter profit reports had initially fueled this decline. Analysts expect that the Aussie may retest the $1.0443 barrier.

Asian Currencies Halt Advance

Earlier in the trading session, investors gained confidence from a 7.4 percent increase in the Chinese gross domestic product for the third-quarter. This was further boosted by a 14.2 percent increase in retail sales and a 9.2 percent increase in industrial productions. Over the last five days, Asian currencies have advanced significantly. The trading session on Thursday saw many of these advances fall as investors realized how excessive the gains were.

The Bloomberg-JPMorgan Asia Dollar Index is currently at 72. Any drop below 70 is viewed as a sign that a decline is imminent. For the second half of 2012, the gauge has managed to rally 2.2 percent. Despite a better-than-expected third quarter, China is still battling with a gradual slowdown. As the largest purchasers of Taiwanese, Thai and South Korean goods, a slowdown in China is felt throughout the region.  The Chinese yuan reached a 19-year high earlier this week of 6.2525 against the dollar. By today’s trading session, it fell 0.2 percent to 6.2556. Premier Wen Jiabao stated that China is confident that it will achieve its economic goals as growth stabilizes.

The Philippine peso dropped from its strongest rate in more than four years as importers began purchasing up dollars. Dropping 0.3 percent since yesterday, the Philippine peso is currently at 41.285. Over the last year, it has gained 6.1 percent which makes it the second-best performer out of 11 of the top currencies in Asia. The Indonesian rupiah also dropped 0.1 percent to 9,586 versus the United States dollar while the Indian rupee lost 0.4 percent to 53.10 versus the greenback.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.