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Daily U.S. Forex Summary

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The US dollar rose from a record low against the euro

Fri, Apr 18 2008, 06:48 GMT
by Union Bank of California Team

Union Bank of California

The US dollar rose from a record low against the euro as Luxembourg Finance Minister Jean-Claude Juncker said financial markets misunderstood the G-7’s position on currency volatility. On April 11, G-7 finance ministers said that they are concerned sharp fluctuations in currency markets may hurt the global economy. The greenback has fallen 0.6 percent against the euro since those comments. The dollar later pared gains on the release of a sharply lower Philadelphia Federal Reserve’s business index for April, adding to existing concerns about the health of the US economy. The news also supports expectations for the Fed to cut rates by at least 25 basis points from 2.25 percent later this month.

The euro nearly reached a record high of $1.60 versus the dollar but retreated sharply as Euro group Chairman Jean Claude-Juncker spoke out against the single currency's rise. Juncker said markets did not correctly understand the G-7 industrialized nations' message about not liking excessive volatility as that was bad for global growth. But with the European Central Bank set on combating inflation and the US Federal Reserve seen cutting interest rates further to limit damage from the ongoing credit market crisis, the euro's broad uptrend will linger and the greenback should remain under pressure.

Sterling rose versus the US dollar, boosted by a Treasury source saying British authorities could announce as early as next week the details of a plan to ease tight conditions in the mortgage market. The BoE helping to alleviate the credit crunch is boosting confidence and taking some pressure off the pound.

The Japanese yen weakened versus the dollar as gains in stock markets prompted some investors to take on carry trades. The yen also weakened against the Aussie as rallies in US, European and Asian equity markets encouraged the return of the carry trade and the buying of high yielding currencies like the Aussie and Kiwi.

The Canadian dollar fell slightly after data showed Canada's annual inflation rate slowed more than expected, adding to the view that the central bank will cut interest rates next week. The slightly soft data implied that the Bank of Canada could ease rates by another 50 basis points next week, which will keep the Canadian dollar under pressure in the near term.

The Australian dollar held firm as gains in global equity markets pointed to a returning appetite for riskier trades in high-yielding currencies, renewing the carry trades. The Aussie was also assisted by new record highs for oil at $115.21 and gold climbing to $944 an ounce. The New Zealand dollar was steady, also benefiting from a rebound in equity markets, though its gains were capped by a poor outlook for the domestic economy.

Published on  Fri, Apr 18 2008, 06:49 GMT