Dollar Chops Around, Euro Resilient

The US dollar is mixed in choppy trading. The euro has shrugged off a weaker than expected ZEW survey (28.7 vs 42.0 consensus after finding a bid near $1.2170. The BOJ unveiled a new JPY3 trillion loan facility to aid business and, although equity prices are firm, the yen remains somewhat better bid. Slightly softer than expected UK inflation figures have done sterling little good and its remains the laggard among the G7. The dollar-bloc itself is mixed, with profit-taking among the antipodeans, but a firmer Canadian dollar. To the extent there is an overall theme it may be the consolidation of the recent foreign currency recovery in a market that lacks conviction of the near-term direction.

Global equity prices are generally firmer. The MSCI Asia-Pacific Index was slightly higher and managed to close at its best since 19 May. The pullback in commodity prices, including the snapping of the 5-day rally in copper, weighed on the basic materials sector. Of note, progress on a China-Taiwan trade pact appears to be helping underpin the Taiex, the best performer in the region (+0.9%) ahead of tomorrow’s holiday. European bourses are most 0.25%-0.50% higher, as opening gains are extended through the European morning. Consumer services and technology sectors are leading the way.

Following Moody’s downgrade of Greece’s sovereign rating yesterday; a couple of bond indices have announced intentions to drop Greek bonds from their benchmarks as of the end of the month. Peripheral spreads in Europe are widening out today, especially Greece and Ireland. Spanish bill auction was well received, but as we saw last week, at a cost of sharply higher yields. Belgium’s bill auction was better received and without much of an increase in yield, despite the political uncertainty following the weekend election.