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  • Fed Hawkishness, China Slowdown Blow Global Currency Markets 0 comments
    Jun 20, 2013 11:21 AM | about stocks: AUD, USD

    Dollar (NYSEARCA:USD)

    The greenback posted heavy gains against all its major counterparts after the Federal Reserve outlined its monetary stimulus pullback plan. Fed chief Ben Bernanke said yesterday that the central bank may start reducing its $85 billion asset purchase program by the end of 2013 and close it completely by middle 2014 if the U.S. economy continues to improve on expected lines. The stimulus withdrawal will make the future direction of global financial markets uncertain.

    After the Fed's hawkish comments, the dollar index jumped 0.6% to 81.890. The greenback surged 1.61% against the Japanese yen to 97.97. Euro struggled as PMI data showed that the private sector in the region is yet to begin a steady recovery. Dollar rose 0.59% against the single currency to 1.3194.

    Australian Dollar (NYSEARCA:AUD)

    The Aussie crumbled to a 33-month low after double punch from the Federal Reserve stimulus withdrawal and disappointing Chinese manufacturing data. In a preliminary Purchasing Manager's Index (PMI) data, HSBC and Markit showed that China's manufacturing activity fell to 48.3 in June, well below the consensus estimate of 49.1. A slowdown in China will severely hamper Australian exports as the dragon is its biggest export market. Forex signals on the AUD went bearish at both pieces of news.

    The Aussie was down 1.79% against the greenback to 91.76 cents, after briefly dropping to 91.64 cents, its lowest level since September 8, 2010.

    Swiss Franc (CHF)

    The franc jumped against the euro but skidded versus the dollar after the Federal Reserve's comments and weak China PMI data prompted investors to turn to safe haven currencies.

    Today, data showed that the Alpine nation's exports plunged 5.2% in May, as exports of pharmaceuticals, watches and chemicals fell. Swiss exports are supported by the 1.20 cap versus the euro that Swiss National Bank had imposed in 2011. But exports have suffered due to weak demand from Eurozone, the biggest trading partner of Switzerland.

    The franc rose 0.1% versus the single currency to 1.2328, but fell 0.3% against the dollar to 0.9306.

    Pound (GBP)

    The British currency plunged to two-week low versus a strong dollar. Traders said that the Federal Reserve's stimulus pullback comments moved the interest rate differentials in favor of the U.S. bonds, pulling the pound down. The decline may go deeper if UK retail sales data for May, which is to be announced today, fall short of estimates. Economists expect retail sales to rise after a steep contraction in April.

    Sterling fell 0.23% against the greenback to change hands at $1.5450, after falling to a two week low of $1.5428. It was almost flat against the single currency, changing hands at 85.75 pence.

    Indian Rupee (NYSEARCA:INR)

    Indian rupee witnessed the biggest single day drop in 21 months after the U.S. central bank signaled that it will withdraw quantitative easing that boosted dollar supply. Earlier in the session, it fell to a record low of 59.9275, crossing the previous all-time low of 58.9850 touched on June 11. Indian rupee has fallen 9.2% since April 1, the worst performing Asian currency. Forex signal providers hammered the currency to new lows in the late session.

    A finance ministry official said that the country is prepared to curb currency volatility. However, traders said that the Reserve Bank of India's steps will be limited because the country has only $290 billion in forex reserves, that can cover just seven months of imports.

    Among other currencies, South Korean won fell to one year low of 1,146.55 versus the dollar.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: AUD, USD
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