Forex Market Review – PBOC rate cut boost risk appetite

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Euro rose against the dollar during today’s European session to a high of 1.2603 on improved risk appetite after a successful Spanish bond auction. There is renewed hope for the recapitalization of the Spanish banking sector on the horizon, after the Spanish government reached above the sales target in today’s debt auction, selling bonds with a total of 2.1billion euros of  2, 4 and 10-year maturities. Meanwhile, a surprise rate cut by the central bank of China  by 25 basis points late in the session gave an additional boost to risk appetite. Euro has rallied 4 percent  since its June 1st low of 1.2287.

 

Sterling is up 0.3 percent after being lifted by news that the Bank of England left policy unchanged. Interest rates were kept at 0.5 percent and the asset purchase program at GBP325 billion. Prior to the rate announcement today, UK services PMI unexpectedly rose higher to 53.3. No statement was released with the BoE announcement, given that policy remained unchanged. As such, we will look to the minutes release on June 20th for further details.

 

Yen weakened 0.2 percent against the dollar from yesterday’s close, as market sentiment remains relatively bullish in terms of risk appetite. Hence this reduces demand for the safe haven Japanese currency. USDJPY rose to a high of 79.71, the highest since May 25. EURJPY surged above 100 for the first time this month.

 

Aussie is up 0.4 percent versus the greenback and gaining on the crosses following the PBOC surprise 25 basis point rate cut. Earlier in the day aussie as lifted by the release of stronger than expected domestic employment data which showed Australia added 38,900 jobs in May. AUDUSD rose to 0.9995, from the European session open of 0.9960.

 

Looking ahead, the focus turns to Fed Chairman Ben Bernanke’s  testimony to Congress on the U.S. economy later today. Any hints on the possibility of more quantitative easing are seen as key.