Daily Forex Overview

Previous session overview

On Wednesday, the U.K. pound took center stage in currency markets, plunging to a six-year low against the dollar following a sobering economic assessment from the Bank of England.

BOE Gov. Mervyn King said the U.K. economy is probably already in a recession and suggested more interest rate cuts are coming, even after the central bank's 150-basis-point cut last week that brought the key rate to 3.0%.

On Wednesday, the crisis feeling dominated again sentiment on financial markets and EURUSD reacted accordingly. The pair showed some forceful intraday swings, but the trend was downward oriented and EURUSD slipped from the 1.2600 area at the start of European trading to intraday lows in the 1.2470 area and closed the session at 1.2505.

The pound fell broadly, dipping under USD1.50 for the first time since 2002, reaching as low as $1.4896. The euro rose as high as GBP0.8412, the highest since the single currency was created.

The Japanese yen strengthened against its US counterpart after gaining ground in the two previous trading sessions. Japan's currency continues to benefit due to safe haven flows despite a 25 year low in consumer confidence and a pressured equity market. USDJPY traded with a low of 94.50 and a high of 98.06 before closing the day around 95.40.

The Australian dollar was weaker late Thursday as fear-based trades returned to global financial markets in force, which in turn helped push domestic three-year bond yields to new record lows. The rout in risk sentiment prompted the Reserve Bank of Australia to intervene in Australian dollar trade in the offshore session to halt a rapid two-and-a-half U.S. cent slide in the currency.

Market expectation

The euro and dollar are higher against the yen Thursday due to hedge funds on the buy side, said dealers. The dealers cautioned that these buy positions may be short term. The euro fell slightly against the dollar.

GBPUSD has eroded major support at 1.5260 and 1.5125, the latter being its 24-year support line, says analysts. Risk now is seen toward 1.4550, being a 61.8% retracement of the up move from 1985, and then 1.4175 the base of its 18 year channel. GBPUSD now trades at 1.4871.

EURCHF remains under near-term downside pressure, traders say. However, a recent drop to 1.4735 suggests there may be a rebound from those levels.

Today, the US calendar contains the trade balance and the jobless claims In Europe, a long series of ECB speakers is scheduled to speak. However, stock markets and the global investor sentiment will probably continue to be the most important drivers for trading on the currency markets. At the current juncture, it is the big picture that matters. �Local' details most often only have a temporary impact on trading in the major cross rates.

Most important events of the day