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Daily U.S. Forex Summary

The US dollar initially held its ground after data released sighting

Mon, May 12 2008, 06:26 GMT
by Union Bank of California Team

Union Bank of California

The US dollar initially held its ground after data released sighting that the U.S. international trade deficit for March narrowed more than expected, but soon gave up any gains against its major counterparts as risk aversion took focus. The U.S. trade deficit narrowed in March, by 5.7% to $58.21 billion, as imports of cars and crude oil dropped with record-high oil prices.

Look for the greenback to remain under pressure as the market turns its focus to interest rate differentials on the back of yesterday’s decisions for the European Central Bank and the Bank of England to hold rates steady at 4 and 5 percent respectively.

The euro held its ground despite the release of better-than-expected figures out of the U.S and on the back of the European Central Bank’s (ECB) decision yesterday to hold rates at 4 percent. ECB President Jean-Claude Trichet reiterated in an unexpected hawkish statement that inflation is his key target and although the Euro Zone has seen some signs of slowing, overall the economy is growing.

Sterling tumbled against the dollar as investors digested the Bank of England’s (B of E) decision to hold rates steady yesterday. Continuing to pressure the UK’s single currency is talk of an impending interest rate cut from the B of E as early as June. The market will look towards a quarterly inflation reports due out next Wednesday for further direction into the GBP/USD currency pair.

The Japanese yen continued to push higher against the dollar despite the release of a lackluster leading economic report. The leading economic indicator for Japan came in at 20 inline with expectations, but much lower than previous releases. Look for USD/JPY to remain fairly supported on the back of the carry trade unwinding yesterday coupled with weaker equity markets.

The Canadian dollar pushed higher after a report released sighting that more domestic jobs were created in the month of April than initially predicted. The report showed that the Canadian economy created 19,200 jobs in April, close to double the forecast. The data, however, did not alter interest rate expectations for a 25 basis point rate cut in June. Look for the commodity-linked loonie to continue to push higher as oil rises to a new high above $125 a barrel.

The Australian and New Zealand dollars remained under pressure against their U.S. counterpart after the release of the Reserve Bank of Australia’s (RBA) quarterly policy statement. The statement sighted that Australia’s economy was seeing signs of slowing, which should intern curb inflation, erasing any need for further rate hikes. RBA anticipates that inflation will be within its target band of 2-3 percent by the end of 2010. Look for the Aussie and Kiwi to remain fairly stable, however, with record commodity prices and interest rate differentials taking focus.

The Mexican peso strengthened against the U.S. dollar as investors focused on interest rate differentials between Mexico and the U.S. Mexico's central bank has held interest rates steady at 7.50 percent since October 2007, while the U.S. Federal Reserve has cut its benchmark interest rate seven times since mid-September to 2 percent.

Published on  Mon, May 12 2008, 06:28 GMT

Archive

• The US dollar was mostly flat against a basket of currencies
  Published On Fri, Sep 5 2008, 05:48 GMT
• The US dollar strengthened against a basket of currencies after dismal euro zone data
  Published On Thu, Sep 4 2008, 05:56 GMT
• The US dollar ignored yesterday's surprisingly strong second quarter U.S. growth data
  Published On Mon, Sep 1 2008, 05:55 GMT
• The euro held gains, benefited from a surge in oil prices
  Published On Fri, Aug 29 2008, 05:54 GMT
• The US dollar softened as investors took profit on the greenback's recent rise
  Published On Thu, Aug 28 2008, 05:55 GMT

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