- Geithner, in a rambling answer on China’s SDR proposal, says it “deserves consideration”
- Later clarifies comment, says dollar will remain the global reserve currency for a long-time, reiterates strong dollar policy.
- White House uses same language; dollar to remain reserve currency for long, long time
- Volcker dismisses Chinese proposal out of hand, calls it impractical; blames China for accumulating too many reserves, contributing to imbalances
- IMF’s Strauss-Kahn- Chinese currency plan worth discussing
- US durable goods orders rebound in February, up 3.4%; January revised to -7.3%
- US new home sales rise rise 4.7% in February
- US 5-year note auction weaker than expected, sparks US debt jitters
- French jobless rise 79.9K in Feb, +3.5% m/m, 19% y/y
- Berkshire Hathaway debt on credit watch negative at S&P
- S&P 500 closes up 1% on late rally; more than 3% intraday swing
- US 10-year note yields rise 10 bp despite Fed buying $7.5 bln in 7 year notes
It was a pretty hairy session in the US today with the market getting hit with a “tape bomb” at mid-morning. Reuters reported that Geithner was “quite open” to the Chinese notion of an SDR-based reserve currency. That headline was much stronger than the actual comment but the damage was done. EUR/USD spiked to 1.3650 from 1.3470 on the headline, retraced to 1.3500 on Geithner’s clarification and then spent most of the session in the upper reaches of the 1.35-handle with dealers concerned about the US’s ability to raise sufficient foreign capital at these low interest rates. In the big picture, the 1.3415/20 support level was strengthened by an overnight test and favorable medium-term technicals prevail for EUR/USD. New York range 1.3444/1.3649.
GBP was the other market obsession today, tumbling as the UK was unable to sell all of the measly GBP 1.5 bln in 40-year gilts it tried to auction, selling only 93% of them. With huge deficits seen over the next few years in the UK, the absence of demand for UK debt spooked the market badly and had all the other markets watching the US 5-year auction with unusual attention this afternoon. The US auction was far better than the UK’s but it was not as strong as some recent sales, so the dollar tumbled back onto the 1.36 handle in EUR/USD and up to 1.4575 in cable. EUR/GBP was in strong demand throughout the session as some suspect the pound will have to fall and rates rise to attract foreign buyers for UK debt. The US range for EUR/GBP was 0.9220 to 0.9373.