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Thursday 21:05 BST. Signs that western military strikes in Syria could be delayed helped drive global equities higher, as emerging market currencies enjoyed some respite and demand for “haven” assets such as Treasury bonds and gold faded.
Encouraging data on the US economy added to the brighter tone, as did confirmation that Vodafone was in talks with Verizon over the sale of its stake in their US joint venture.
“Risk appetite has recovered as it appears any intervention in Syria from the US or its allies could be a more drawn out operation for a number of reasons,” said John Hardy, head of FX strategy at Saxo Bank.
“Also, there are signs that key emerging market countries are receiving or will receive relief from the selling pressure in the form of large currency swap lines.”
Indonesia’s central bank raised interest rates by 50 basis points and extended a bilateral swap deal with the Bank of Japan.
Meanwhile, an easing of crude prices helped support the Indian rupee, given that India is a big importer of oil. Brent eased further from Wednesday’s six-month high above $117 to settle at $115.16, down $1.45.
The dollar retreated 3.3 per cent against the rupee to Rs66.55, while the Indonesian rupiah and the Turkish lira also rallied against the US currency, albeit more modestly.
However, Kathleen Brooks at Forex.com said the rupee’s respite could prove temporary.
“India’s rupee is ripe for recovery after falling nearly 30 per cent since April,” she said.
“However, in the longer term, if India cannot address its structural issues then the dollar could move up to the Rp70 region. The entire EM FX space is likely to come under sustained scrutiny, and bad economic practices will not be tolerated by the markets.”
Meanwhile, the dollar made gains against its main G10 counterparts – helped to some degree by a bigger than expected revision to second-quarter US GDP data. The economy grew at an annualised pace of 2.5 per cent in the period, compared with the initial estimate of 1.7 per cent, largely due to a sharp improvement in exports.
“All in all, the stronger GDP print may give policy makers encouragement that the economy was on a fairly stable footing in the second quarter, with positive headwinds from solid income and profit growth boding well for the second half of the year,” said Peter Newland, economist at Barclays.
“However, we continue to judge that a significant ramp-up in growth is unlikely, particularly given the ongoing effects of fiscal tightening.”
There was further positive news from the US labour market, as the number of Americans filing first-time unemployment claims fell by 6,000 last week, more than expected.
The dollar index, a gauge of its value against a basket of currencies , rose 0.7 per cent.
Gold , meanwhile, was down $11 at $1,406 an ounce – snapping a five-day rally that had taken the metal to its highest level for three months.
Equity markets took encouragement from the US figures as investors shrugged off the implication that they might encourage the Federal Reserve to start scaling back its stimulus measures as early as next month.
Wall Street did wobble slightly towards the close of trade, but the S&P 500 still managed to end 0.2 per cent higher, with Verizon, and Vodafone’s US-listed shares, rising strongly.
Across the Atlantic, the FTSE Eurofirst 300 gained 0.7 per cent while the Nikkei 225 Average in Tokyo climbed 0.9 per cent.
Core government bond prices also came under early pressure as the “safety first” mantra seen this week began to fall out of favour. However, the 10-year US Treasury yield – up as much as 6 basis points at one stage – turned tail to stand 1bp lower at 2.76 per cent.
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