By Joe Manimbo of Travelex
NEW YORK (
) -- Currencies were trading mostly sideways Wednesday as traders were content to hit the pause button on the recent slide in the dollar.
Clues continued to emerge from the eurozone with respect to the current credit crisis, particularly about Spain. Despite the euro's recent peaks, concerns remain very much at the fore as recent clues suggest a Spanish economic meltdown may be approaching. The most evident concerns were visible in the eurozone sovereign debt markets, where the spread on Spanish bonds reached a euro lifetime peak of almost 2.25% over those of fellow EU member state Germany. German bonds, viewed as the benchmark in the eurozone, saw strong interest in a sovereign debt auction held earlier this morning, continuing the recent trend and limiting the single currency's downside.
The European Commission this morning denied reports that it was working with the IMF and the U.S. Treasury on a liquidity plan to support Spain in the event of a sovereign default. Spain also denied that Friday's visit by the head of the IMF indicated it was in need of immediate fiscal rescue. The pound was supported by strong local employment data.
The Swiss franc slid, though only slightly, ahead of the Swiss National Bank meeting tomorrow. The Swiss have been under the microscope of late after the central bank has been in the foreign exchange markets to weaken the nation's currency, which currently is sitting near all-time highs against the euro.
Data out of Australia overnight showed continued strength in the local housing market and initially provided a boost to the Australian dollar, but the currency surrendered those gains when the eurozone news emerged.
Also of note was a report out of Russia that the country may be diversifying a small percentage of its substantial foreign exchange reserves out of dollars and into the Australian dollar and Canadian dollar. This seemingly fell on deaf ears as the focus remained squarely on European credit markets.
: U.S. May housing starts for May fell by 10.0% month over month. This translates into a 593,000 annual rate. April saw the annual pace revised to 659,000. The May producer price index fell by 0.3% largely on the back of tumbling energy costs. Gasoline, for example, fell by 7%. Expectations had been for a decline of 0.5%. This reading of inflation at least shows that prices are well contained and should allow the
to keep monetary policy accommodative should it so choose. The dollar was largely unchanged on the news.
: The euro continues to take its cues from developments out of sovereign debt markets. Today's events were enough to knock the single currency down a bit, though it resides within striking distance of recent one-month peaks. As mentioned, spreads on Spanish bonds over comparable German bonds reached a euro lifetime high on Wednesday as concerns over Spain's ability to raise capital continue to hound Spanish officials. The premium that investors are now demanding from Spain to buy its debt is almost 2.25% higher than similar German debt. As a point of reference, the premium on Greek bonds over German bonds is nearly three times that level. The Spanish were also forced to squash speculation that the U.S. Treasury, the EU and the IMF were cobbling together a 250 billion euro credit line for Spain. On the data front, if anyone is still keeping score there, eurozone CPI for May rose 0.1% month over month, in line with forecasts. The year-over-year increase of 1.6% was the biggest rise in a year and a half. Obviously, reaction to the data was muted.
: The pound was underpinned by a better-than-forecast employment report. The rate itself fell to 7.9% from 8.0% while the number of those claiming jobless benefits fell by 30,000. Hourly earnings were also in line with forecasts. Sterling sits just off one-month peaks as a result. Retail sales figures due out tomorrow are expected to show a modest decline.
: Australian housing starts increased by 4.3% q/q according to data from down under last night. Though much cooler than recent readings and lower than forecasts this reading represents a new 6 year high for housing starts, though word was that government stimulus was largely to credit for keeping the reading positive. Aussie, like many others remains poised just off one-month peaks on the news but should continue to draw most of its support when a "risk-on" mentality pervades markets.