Under pressure from continued speculation that countries in the Gulf region are preparing to ditch or revalue their currency pegs to the U.S. dollar, and on talk of an emergency U.S. interest rate cut, perhaps later in the day. A Saudi newspaper quoted an official of the regional economic block as saying Saudi Arabia may be reluctantly considering its first riyal revaluation in two decades in response to the declining value of the dollar. The dollar slid to record lows against the euro and the Swiss franc, while the low-yielding yen also weakened as a rebound in global equity markets boosted demand for relatively high-yielding currencies. The Federal Reserve publishes the minutes of its Oct. 30-31 Federal Open Market Committee policy meeting, and will issue more detailed and extensive economic forecasts. Its next scheduled policy meeting is on Dec. 11, though some analysts believe a rate cut could come before the scheduled meeting. Investors have been braced for another cut in December and more to come in 2008 as the Fed tries to prevent troubles in the housing and financial sector from slowing the wider economy.
Despite the fact that the German economy is coping extremely well with the strong euro, France continues to struggle according to French Public Accounts Minister Eric Woerth, who said that the value of the euro was too high versus other currencies, such as the dollar and the yuan. "The President (Nicolas Sarkozy) has talked about this several times. We consider that the euro is too strong versus the dollar, versus the yuan, versus other big international currencies. That worries me, of course." With the euro cresting to a new all time high against the USD, Eurogroup chairman Jean-Claude Juncker commented that, Euro zone finance ministers deplore sudden currency movements and are watching foreign exchanges closely. Without mentioning explicitly the possibility of intervention on currency markets, he said the 13-member euro zone's finance ministers were in regular contact with their U.S. and Japanese counterparts about foreign exchange.
The British pound remains at new 4-1/2 year lows against the euro, though slightly stronger against the beleaguered USD as sentiment remained negative for the pound and focus on the timing of a UK rate cut increased.
The Japanese yen is remains firmly entrenched in its recent ranges against the USD with holiday trading fast approaching. The yen has been showing a wide movement throughout the trading day as investor’s appetite for risk changes hourly.
The recent correction of the Canadian dollar continues as a sharp drop from all time highs weighs on investors. Last 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.
The Australian and New Zealand dollar continues their roller coaster peaks and valleys against the U.S. currency and the Japanese yen as heightened risk aversion led investors to stay clear of high-yielding currencies one day and shift their position the next. Many traders believe that strong fundamentals still support the Aussie and it could rise above .90 cents over the next two weeks, but it will face headwinds from the negative sentiment in stock markets.
