Friday, July 26, 2013

IMF Warns ECB Must Cut Interest Rates Again

ZuluTrade reports that the dollar falls to one-month lows vs. Euro, Pound. Investors turned cautious ahead of next week's Federal Reserve policy meeting.

Asian shares: Japan's Nikkei -2.97%, Hong Kong's Hang Seng 0.19%(07:00 GMT), Korea's Kospi 0.06%, Australia's ASX 200 0.11% and China's Shanghai -0.49%.

IMF warns European Central Bank must cut interest rates again to kickstart the eurozone out of recession.

IMF: Euro Zone Recovery Remains ‘Elusive’. “Substantial collective actions have addressed important tail risks, and extreme market stresses have subsided,” noted an IMF press release. There are numerous problems. “Financial markets are still fragmented along national borders, and the cost of borrowing for the private sector is high in the periphery, particularly for smaller enterprises,” the release explained. “Ailing banks continue to hold back the flow of credit. In the face of high private debt and continued uncertainty, households and firms are postponing spending. Needed fiscal consolidation is also weighing on growth.”

The dollar index .DXY stood at 81.791, having slid more than 0.6 percent on Thursday to a low of 81.624, a level not seen since June 21. Renewed pressure on the dollar saw the euro jump as far as $1.3296, a high last seen on June 20. Against the yen, the greenback was down at 98.85 having touched a two-week low of 98.62.

Setting the greenback on a slippery slope was a Wall Street report that the Fed may debate changing its forward guidance to help hammer home its message that it will keep rates low for a long time to come. The report helped knock the benchmark Treasury yield off a near two-week high of 2.634 percent, a move that also undermined the greenback.

The Federal Reserve is on track to keep its $85 billion-a-month bond-buying program in place at its policy meeting next week, but officials likely will debate changes to the way the central bank describes its plans for the program and for short-term interest rates.

Japan's core consumer prices turned positive and rose 0.4 percent in June from a year earlier, marking the fastest pace of increase in nearly five years, data showed on Friday, suggesting the government's efforts to eradicate years of deflation are bearing fruit.

Australia's domestic outlook has deteriorated throughout the year, and in addition, global data has softened over recent months, particularly from China, notes Goldman Sachs. In response to these deteriorating conditions, GS believes that the Reserve Bank of Australia (RBA) will have a further 50bp of cuts till year-end starting with a cut of 25bp in August.

The AUD/USD has recovered some of the lost ground from the previous day, as it has made another push above 0.92 towards the well established resistance level at 0.93.

The New Zealand currency was a standout performer overnight, jumping 1.1 percent on the greenback to $0.8105, its highest in six weeks.

Watch today: Yellen-Summers race, US sentiment.

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