Despite the closure of the Japanese markets overnight, Asia managed to inspire a significant improvement in sentiment overnight. Stocks were lifted by the upward revision in the Asian Development Bank's growth estimate. Ex-Japan Asian growth is now forecast at 3.9% in 2009 up from a March forecast of 3.4%. New Zealand economic data also boosted the market's appetite for risk and sent the NZD soaring to a 13 mth high vs the USD.
In reflection of the increased risk appetite, EUR/USD entered the European session comfortably above last night's close, rising to above the 1.4800 as the morning rolled on.
In line with the recent tradition, EUR/JPY, GBP/JPY and AUD/JPY have all followed the stock markets higher. The weaker dollar has also allowed cable to reverse some of yesterday's losses. EUR/GBP has seen a choppy morning but presently stands a little above last night's close reflecting underlying sterling weakness.
There were no UK data releases this morning. PM Brown made the statement that the ''stimulus that we have still got to give the world economy is greater than the stimulus we have already had''. While existing fiscal incentives are still working their way through the system, the idea of further spending programs is counter to the rhetoric of all UK politic parties that spending cuts will have to be made going forward to curtail the huge budget deficit. The key event for the UK market this week will be tomorrow's release of the minutes of the September MPC meeting. While no change in policy was announced this month the markets will be looking for signs of dissent which may impact the chances of another policy move in October. In view of the rise in EUR/GBP in recent sessions, a less dovish than expected report could trigger a decent bout of short-covering for sterling.
The New Zealand dollar benefitted from a series of positive shocks overnight. Unusually for the June quarter, the country posted a current account surplus of NZD124 mln in the 3 mths to June. Not only this but the NZIER revised higher its forecast for New Zealand growth while Finance Minister English reported that the jobless rate may peak at less than the 8% forecast made in May reflecting the resilience of the New Zealand economy. NZD/USD surged through the 0.72 area on the news and continues to trade near that day's high at 0.7228. The AUD was dragged higher to a little under 0.8760.
While USD selling is extending into the US open, some nervousness ahead of this week's FOMC decision may curtail downside pressure. The G-20 meeting later in the week may also prevent USD selling from accelerating. US data releases today will be confined to the Richmond Fed manufacturing index, house price data and the ABC consumer confidence index.
