Forex news

Optimism arising from positive manufacturing data is fueling the market. The US ISM Manufacturing Index indicated a rise in output – the index rose to 54.1 in January from 53.1 in December. Earlier, similar data from China was better than expected – 50.5 in January from 50.3 in December. In the euro zone the number was also higher than expected even though still showing a contraction – 48.8 in January from 46.9 in December.

The increase of risk appetite amongst investors has boosted equity markets around the globe and currencies such as the Australian and New Zealand dollar have benefited. The Aussie reached a 5 month high touching $1.0755 earlier today following a report released showing that the trade surplus of Australia increased at a higher rate in December than it had in November. To note that traders currently consider that there is a 58pct chance that next week the Australian central bank may reduce its benchmark lending rate from the current 4.25 pct to 4.00 pct.

The euro also gained yesterday and has remained stable since. The Greek Prime Minister had earlier said that he expects an agreement with creditors before the end of the week.  Insiders have said that bond swap deal leading to 70 pct losses by private creditors is basically done but the second bailout and public sector participation must be agreed on before final agreement can be reached. Meanwhile yields on Portuguese, Italian, and Spanish debt fell as the market is more optimistic that the euro zone debt crisis, even though difficult, will be managed. European inter-bank rates have lowered further reflecting this increase of confidence.

Gold advanced to the highest level in eight weeks, reaching $1753.4 earlier today. It has rallied as investors increase holding in equities and commodities as they increase risk in their portfolio.

Japan’s Finance Minister once again warned against strengthening in the yen, signaling to the market that the government may intervene in the forex market. However Bank of Japan Governor later said that they are not considering immediate action.