The U.S. dollar is under continued pressure following this morning's release of worse

The U.S. dollar is under continued pressure following this morning’s release of worse than expected industrial output data. Today’s news highlights the largest contraction since January. Earlier in the morning, the St. Louis Federal Reserve President, William Poole, told Dow Jones news service that he cast doubt on the need for more interest rate cuts. This had helped support the USD, but gains were quickly erased following the economic data. U.S. Treasury Secretary Henry Paulson repeated on Thursday that a strong dollar was "very much" in America's interest and said the U.S. economy's underlying vigor will eventually show up in the currency's value. "Our economy, like any other, goes through ups and downs but I believe the U.S. economy is going to continue to grow and its fundamental long-term strength is going to be reflected in currency markets," Paulson said. Paulson said he fully expected currency to be discussed at the G20 sessions. Global tensions over currencies are growing and will dominate this weekend's meeting of the Group of 20 nations, but any co-coordinated action plan is unlikely. The U.S. dollar has fallen sharply in recent weeks, exacerbating concerns for exporters outside the United States.

Echoing yesterday’s comments by ECB Board member Juergen Stark, German Deputy Finance Minister Thomas Mirow said in an interview today that the German economy has coped extremely well so far with a strong euro and is not suffering from a credit squeeze, The euros’ rise is not hindering eurozone growth, especially that of its largest exporter, Germany. "So far, it must be ascertained the German economy has been extraordinarily successful with the strong euro," said Mirow, but noted that some firms exporting to U.S. dollar markets had suffered increased cost pressures due to the euros’ rise.

The British pound enjoyed a small respite this morning after hitting 4-1/2 year lows against the euro on Thursday, but sentiment remained negative as risk appetite waned and focus on the timing of a UK rate cut increased.

The Japanese yen is remaining firm against the USD going into the weekend. Japanese Economics Minister Hiroko Ota said on Friday that she is watching how the higher yen and oil price movements will impact the domestic economy.
"Financial markets are very uncertain and volatile. We need to be sufficiently alert about how they might impact the real economy," Ota told a news conference.

The recent correction of the Canadian dollar continues as the loonie slides lower for the 5th consecutive day. Earlier in the week Canadian officials commented that a persistently high Canadian dollar could pose a threat to Canadian economic growth and push inflation lower. These comments combined with a continued fall in commodity prices will weigh on the currency. Some traders see the likelihood of parity with the USD before year end.

The Australian dollar fell towards this week's troughs against the U.S. currency and the Japanese yen as heightened risk aversion led investors to stay clear of high-yielding currencies. Many traders believe that strong fundamentals still support the Aussie and it could rise above .90 cents in a week or two, but it will face headwinds from the negative sentiment in stock markets.

Under pressure from weaker stock markets and increased risk aversion, the New Zealand dollar consolidated at lower levels after retreating 1% in overnight trading from yesterday’s highs.