The U.S. dollar strengthened against the Euro, but remained steady against the yen as carry trades took the markets focus, as investors flocked to the New Zealand dollar and other high-yielding currencies. Assisting the dollar’s move higher against the Euro, however, were comments released from Federal Reserve Governor Kevin Warsh. Warsh stated that “Inflation remains uncomfortably elevated,” prompting market participants to start to look towards another rate hike next year from the Fed. With little data due out this week, look for the dollar to remain range bound under thin trading conditions and ahead of Thursday's Thanksgiving holiday.
The euro was little changed against the dollar as Trichet remained hawkish at a news conference culminating the central banker’s seminar in Australia, where he stated that European growth remains strong. In other releases France’s GDP came in at 0 percent as expected and had little affect on the currency. Look for Europe’s single currency to remain range bound for the remainder of the week.
The Japanese yen held steady against the dollar and close to near record lows against the Euro as expectations that the Bank of Japan (BOJ) will raise rates took hold. Japan’s single currency remained under pressure against the New Zealand dollar due to carry trades (investors selling the yen for higher-yielding currencies). Also affecting the currency was the release of the Bank of Japan's minutes from their latest meeting, which sighted that rates should be raised gradually and be fully reliant on economic data. Look for the yen to remain under pressure as traders move expectations out to January for a rate rise from the BOJ.
Sterling remained confined to familiar ranges, even after the release of the CBI industrial trends survey, which sighted an improvement in both orders and price expectations. Look for further strength in the pound as the economy continues to grow and the market predicts continued rate rises from the Bank of England.
The Canadian dollar weakened against the greenback on the heals of domestic retail sales data which came in below expectations. Canadian retail sales fell 1.2 percent in September, worse than the 0.8-percent expected drop. Even with oil prices rising 1 percent, while gold was up slightly, market participants continued to focus on the weak sales numbers. Look for the loonie to remain under pressure ahead of tomorrow’s consumer price data.
The Australian dollar weakened as investors took profits after the Aussie reached its highest level due to an increase in yen carry trades. The market, however, turned its focus to the biggest mover against the yen, the New Zealand dollar. The kiwi rose one percent as market participants moved its investments to higher yielding currencies. As carry trades continue to dominate the market look for the Aussie and kiwi to keep pushing higher.
The Mexican peso remained under pressure as the dollar breached a key technical level and as Mexican stocks jumped over 1 percent. Affecting the move in Mexico’s’ stock market was President-elect Felipe Calderon’s release of his new finance minister, former IMF official Agustin Carstens.
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