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Daily U.S. Forex Summary

The US dollar plummeted to one−month lows against the major currencies

Wed, Nov 1 2006, 01:30 GMT
by Union Bank of California Team

Union Bank of California  |  View company's profile

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The US dollar plummeted to one-month lows against the major currencies after U.S. consumer confidence slipped to 105.4 in October and a reading of Midwest business activity expanded at its slowest pace in more than a year.  The National Association of Purchasing Management-Chicago business barometer fell to 53.5 from 62.1 in September.  The U.S. economy is moderating gradually as expected which continues to weigh on Treasury yields and the dollar.  Look for the US currency to weaken further ahead of the ISM manufacturing index and pending home sales index tomorrow.

The euro rose against the dollar due to a number of US economic releases this morning.  Furthermore, Europe’s economic recovery showed further signs of robust strength as reports revealed that French unemployment is at a five-year low, euro zone inflation is decreasing, and economic confidence is on the rise.  Look for the euro to extend gains if the ECB signals for additional interest rate hikes beyond the end of this year.  

The Japanese yen strengthened following weak US economic data.  The Bank of Japan reinforced that it will raise interest rates gradually.  Growth in consumer prices have been tamed and core CPI rose 0.2 percent in September.  The Bank of Japan will most likely not raise interest rates until inflation reaches 0.5 percent.  Look for the yen to stay range bound as the Bank of Japan is not expected to raise interest rates before 2007. 

Sterling hit a 15-month high against the euro, as British October house price data firmed expectations of a rate hike next week.  British house prices rose 0.7 percent in October but the Confederation of British Industry showed retail sales volumes had fallen at their fastest pace in seven months.  Look for the pound to stay strong before the Chartered Institute of Purchasing and Supply/ RBS Purchasing Managers’ Index (PMI) data due tomorrow. 

The Canadian dollar rose against the greenback, taking advantage of US economic data and positive domestic data.  Canada’s economy grew 0.3 percent, fueled by robust wholesale and retail sales with gains in natural gas and oil.  Energy and metals prices have stabilized recently prompting market analysts to continue to forecast a Canadian dollar that is closely aligned with commodity prices. 

The Chinese yuan edged lower against the dollar staging a consolidation after it hit a post-revaluation high.  The yuan is still forecasted to appreciate as China is under pressure to cut its huge trade surpluses.  Look for the yuan to continue to strengthen and possibly reach par with the Hong Kong dollar next year. 

The Mexican peso and Mexican stocks continue to stay strong as local companies continue to post gains.  Look for the peso to strengthen further as interest rates remain unchanged in the US.

Published on  Tue, Oct 31 2006, 00:00 GMT

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