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Monday, the U.S. dollar and the Japanese yen plunged against their major counterparts as the Asian and European stocks rose further today as a recent run of strong corporate earnings boosted optimism for a recovery in the global economy.
The dollar and the yen are viewed as safe-haven currencies and tends to attract buying when worries about the global economy and financial markets flare up, but can come under pressure when such concerns recede.
The euro and commodity-linked currencies held firm today, underpinned by gains in stocks and oil prices.
The stock market in Japan ended in positive territory today on increasing optimism that the worst for the global economy is over. Scope for an increase in demand and a weaker yen lifted market sentiment as the market opened above the psychological 10,000-mark and marched northward to end higher for the ninth consecutive session.
The Nikkei 225 Average opened sharply higher above the 10,000-mark at 10,021 compared to its previous close of 9,945 on increasing optimism about a global recovery. The market continued to move in the northward direction and ended at 10,089, representing a gain of 144.11 points, or 1.45%. The broader Topix Index of all first section issues gained 7.78 points, or 0.85%, to 928.
Following strong Asian markets, the European stocks are also trading higher today. At 4:26 am ET, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.4 percent at 910.69 points.
During early deals on Monday, the dollar fell to a 4-day low of 1.4272 against the euro. This may be compared to Friday's close of 1.4213. On the downside, 1.434 is seen as the next target level for the U.S. currency.
After hitting a 5-week high of 1.3750 against the euro on June 16, the dollar dropped 4% and touched a 7-week low of 1.4292 on July 23. Although the dollar gained amid a report showed last Thursday that existing home sales in U.S. increased for the third consecutive month in June, it declined again on Friday and fell further today.
The dollar that closed last week's trading at 1.0720 against the Swiss franc slipped to 1.0681 in early deals on Monday. The near term support for the dollar-franc pair is seen around the 1.064 level.
The dollar has lost 1% against the franc after it reached a 3-day high of 1.0773 on July 23.
The dollar weakened against the pound after surging up to a 4-day high of 1.6385 in early Asian deals today. Currently, the pound-dollar pair is trading at 1.6520 and this may be compared to last week's close of 1.6439. If the dollar edges down further, it may likely target the 1.659 level.
A leading business advisory firm said today that predicting the shape of the U.K. economic recovery contains a huge amount of uncertainty, but the revival would be sluggish and protracted.
In its latest economic review, Deloitte predicts the economy to grow just 0.5% next year and then by 1.5% in 2011, which would be a lackluster.
There has been discussions among economists on what shape the British economic recovery will take, "U", "V" or "W", from a recession that was caused by a banking crisis.
In early deals on Monday, the yen declined to a 4-day low of 89.12 against the Swiss franc and a 25-day low of 135.81 against the euro. The next downside target level for the yen is seen at 89.8 against the franc and 137.0 against the euro. The franc-yen and the euro-yen pairs were worth 88.44 and 134.67, respectively at Friday's close.
The euro jumped today after a report showed that the German consumer confidence for August improved strongly, suggesting a recovery in the economy that is hit hard by recession.
According to the latest consumer climate survey from the market research firm GfK, the forward-looking consumer sentiment index rose to 3.5 points for August. The reading for July was slightly revised to 3 from 2.9 points. Economists expected the index to stay at 2.9. Although, the index for August strengthened, sentiment remained at a very low level in a longer term comparison.
The yen that showed choppy trading against the dollar in Asian deals on Monday lost ground during early European trading. At 4:50 am ET, the yen hit a 4-day low of 95.20 per dollar and this may be compared to Friday's close of 94.76. If the Japanese currency weakens further, it may likely target the 95.3 level.
At 3:10 am ET Monday, the yen touched 156.95 against the pound, falling from a 4-day high of 155.77 hit in early Asian deals today. On the downside, 157.7 is seen as the next target level for the Japanese currency. At last week's close, the pound-yen pair was quoted at 155.77.
The yen slipped as Japan's corporate service prices declined at a record pace in June, mainly due to a fall in transportation service prices.
The Bank of Japan said today that the corporate services price index declined 3.2% year-on-year in June, quicker than the 3% fall in the previous month, but slower than economists' expectation of a 3.3% drop. This was the ninth straight month of decline, with the latest fall being the steepest since the series began in 1985.
On a monthly basis, the index climbed 0.4% in June, reversing the declines of the past two months. In May, the index was down 0.3%.
Looking ahead, the U.S. Commerce Department is scheduled to release its new home sales report for June at 10:00 am ET today.
The market is also keeping an eye on talks between top U.S. and Chinese officials in Washington today and tomorrow for any comments regarding the U.S. currency.
The United States, which ran a record $266 billion trade deficit with China in 2008, is seeking ways to rebalance trade, including persuading the Chinese to liberalize exchange rates so that the yuan appreciates to trim Chinese exports and boost imports.
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