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Daily U.S. Forex Summary

The Canadian dollar weakened across the board this morning

Fri, Jul 4 2008, 06:07 GMT
by Union Bank of California Team

Union Bank of California

Foreign exchange markets are widely ignoring weak US jobs data in light of ECB President Trichet’s neutral stance on interest rates following today’s widely anticipated 25 basis point interest rate hike. Markets were anticipating a larger gain in unemployment, so a loss of only 62,000 jobs was relatively good news following huge losses in May. The unemployment rate remains at 5.5%. This data still leaves the door open for a possible US interest rate hike in September; though the trend is still for a weaker US economy and weaker labor market.

The US dollar is neutral to somewhat higher against the major currencies going into the 3-day 4th of July weekend. It is unlikely that the EUR/USD will push through the $1.60 level ahead of the weekend. It is expected that leaders from the Group of Eight (G8) rich nations will discuss concerns that a weak U.S. dollar is a contributing factor to high oil prices when they gather next week in Japan. Food and fuel inflation will be high on the G8 agenda at the July 7-9 leaders' summit in Hokkaido.
Though comments on the greenback from the US government beyond its mantra that it believes in a strong dollar are rare, U.S. Treasury Secretary Henry Paulson said today that a weaker dollar cannot be blamed for soaring oil prices as policymakers around the world tussle with the twin specters of rising inflation and slowing growth. Some of the world's leading oil producers and market analysts say the weak dollar is a key factor spurring many dollar-denominated commodities, including oil, to record highs, driving the cost of living higher across the world.
Paulson countered the rhetoric stating, "The dollar has had a very small impact, take a look, the dollar has depreciated roughly 24, a little bit less than 25 percent, since February 2002. Oil has gone up well over 500 percent. It's gone up in every currency."

The euro fell versus the dollar after European Central Bank President Jean-Claude Trichet said the current level of interest rates would help contribute to achieving the bank's price stability goal. The remarks suggest that the ECB's widely anticipated rate hike was a one-off event and that further rate rises will depend on economic data. Trichet also said downside risks to the euro zone economy persist.

The sterling dropped to a fresh 3-week low versus the after UK services PMI came in weaker than expected adding to the gloomy outlook on the British economy. This data increases the likelihood that interest rates in the UK will remain on hold for the foreseeable future.

The Japanese yen has also fallen victim to the US dollar’s rebound ahead of the holiday weekend. The yen has dropped nearly 1% on today’s economic news out of the US.

The Canadian dollar weakened across the board this morning. Dragging it down was the one-two punch of the decision by the European Central Bank to hike its key interest rate, which weighed on the Canadian dollar since the Bank of Canada only recently took a break from an aggressive easing campaign and is not expected to start hiking anytime soon. This news, combined with a relief rally on the USD following today’s jobs data, has put the loonie under pressure.

The Australian and New Zealand dollars weakened slightly this morning on the back of lower commodity prices paired with a dollar rally. Though, with interest rates among the highest in the industrialized countries, the currencies will remain well supported.

Published on  Fri, Jul 4 2008, 08:10 GMT

Archive

• 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
• The Canadian dollar rebounded, helped by higher oil prices
  Published On Wed, Aug 27 2008, 05:57 GMT
• The US dollar recouped recent losses against major currencies
  Published On Mon, Aug 25 2008, 05:49 GMT
• The Mexican peso appreciated to near 10.11 per U.S. dollar as oil prices rose
  Published On Fri, Aug 22 2008, 05:59 GMT

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