US Dollar, Yen Decline as Bernanke Comments Boost Risk Appetite

Key Overnight Developments

• US Dollar, Yen Decline as Bernanke Comments Boost Risk Appetite
• UK Retail Sales Rose on Warm Weather and Discounts, Says BRC
• Japan’s Current Account Surplus Narrows as Imports Surge in April
• Australian Business Confidence Slumps to Lowest in 11 Months

Critical Levels



The Euro and the British Pound rose 0.4 and 0.2 percent respectively against the US Dollar as stocks advanced for the first in three session in Asian trade (see below). We remain short EURUSD.

Asia Session Highlights



The US Dollar and the Japanese Yen declined against most major currencies as the MSCI Asia Pacific regional benchmark stock index added 0.5 percent after Federal Reserve Chairman Ben Bernanke said recovery in the world’s largest economy began late last summer, with the US consumer “coming back” and the private sector starting to “pick up the baton”, fueling optimism that the global rebound will remain on track despite expectations of a slowdown in the EU and China.

UK Retail Sales rebounded in May – adding 0.8 percent after dropping 2.3 percent in the previous month – according to a report from the British Retail Consortium. BRC Director General Stephen Robertson chalked up the outcome to “warmer weather combined with discounts and promotions,” but cautioned that “there’s still plenty of uncertainty” driving customers away from big-ticket purchases. Robertson added that “this month’s emergency Budget should provide more clarity.”

Japan’s Current Account surplus narrowed to 1242.1 billion yen in April, the smallest in four months, as imports posted the largest gain in 9 months (8.1 percent), overwhelming a 5.3 percent increase in overseas sales. The outcome highlights the vulnerabilities behind Japan’s export-led recovery as demand from its fastest-growing export market in China promises to diminish with policymakers in Beijing proactively looking to slow the buoyant economy amid fears of asset bubbles and runaway inflation.

Australian Business Confidence fell for the third consecutive month, down to the lowest level in nearly a year in May according to a survey from the National Australia Bank. NAB chief economist Alan Oster pointed out that “confidence fell sharply in mining…partly in response to the announcement of the resource super profits tax.” Oster went on to say the “broad-based reversal in confidence partly reflects disturbances on global financial markets…and associated declines in Australian equity prices.” Indeed, a gauge tracking share prices let the overall confidence metric lower, sinking 9 points.

Euro Session: What to Expect



Switzerland’s Consumer Price Index figures are set to show the annual inflation rate dropped to 1.2 percent in May – the lowest in four months – ahead of next week’s Swiss National Bank monetary policy announcement. Although the bank already aims to keep borrowing costs in the lower part of a 0-0.75 percent range (around 0.25 percent), a Credit Suisse gauge of priced-in policy expectations shows traders see a 70 percent chance of a rate cut. The specter of returning deflationary pressure – particularly amid expectations of an economic slowdown on the heels of fading demand from Switzerland’s top export partners in the EU – means that in practice the call for further easing may be validated in terms of renewed vigor on the part of the SNB to intervene in currency markets against the Franc. Separately, the Unemployment Rate is expected to drop to 3.8 percent in May from 4.0 percent in the previous month while the government’s State Secretariat for Economic Affairs (SECO) releases an updated version of official economic forecasts.

German Industrial Production is expected to add 12.4 percent in the year to April, marking the largest annual increase in at least 18 years. The outcome may offer a near-term boost to overall confidence, hinting the weaker Euro will help support export-driven economic growth in the EU’s largest economy, mitigating downward pressure from rising long-term borrowing costs linked to the region’s hefty fiscal burden.

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