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Daily U.S. Forex Summary

Initially, the USD gained on the report

Mon, Jul 14 2008, 05:53 GMT
by Union Bank of California Team

Union Bank of California

Under pressure this morning the US dollar broke through its recent range as record-high oil prices have continued weigh on the USD and markets. Over the past 2-months, dollar’s losses have been capped at $1.5910 against the euro, though today we may be looking at the dollar weakening to levels not seen since April.

Additionally, heightened worries about the U.S. financial sector after news the U.S. government is considering taking over mortgage agencies Fannie Mae and Freddie Mac are pressuring the dollar.
Initially, the USD gained on the report, as investors felt a sense of relief that government action on the two entities could finally mark the bottom for the troubled financial sector. However, that optimism was short-lived.

Largely ignored by market was today’s data, which showed that the U.S. trade deficit narrowed unexpectedly in May and import prices rose last month.

The data suggested higher U.S. inflation, cementing the case for a possible rate hike by the Federal Reserve this year.

The euro was buoyed this morning by soaring oil prices, as it broke through technical levels against the USD.

Yesterdays comments by ECB President Jean-Claude Trichet, that euro zone inflation, which is running at a record 4%, will remain above the central bank's desired level for longer than first expected, didn’t weaken the currency. The ECB’s inflation goal is below 2%. Thus, expectations for additional rate increases out of the ECB remain firm.

Riding the coattails of a stronger euro, the British pound is holding its ground against the dollar and euro as poor sentiment on Britain's economy was offset by a view that rates are set to stay on hold for the foreseeable future.

Yesterday, the Bank of England, struggling to balance an unhealthy mix of rising inflation and slowing growth, kept rates steady at 5%. Investors will look to PPI data on Monday for more guidance on whether rising inflationary pressure could prompt the Bank of England to raise rates even as the economy struggles.

Investors will look to PPI data on Monday for more guidance on whether rising inflationary pressure could prompt the Bank of England to raise rates even as the economy struggles.

With dollar weakness the central market theme today, the Japanese yen soared over 1% against the USD, with sharp moves capped by increasing oil prices.

The Canadian dollar was little changed against the U.S. dollar, after a weak domestic jobs report all but cemented expectations that the Bank of Canada will leave interest rates steady next week. The latest domestic jobs report showed the economy shed jobs for the first time since December while the unemployment rate rose to its highest in over a year.

Analysts will still focus on the statement that accompanies the rate announcement to see if the emphasis will remain on the risk of accelerating inflation.

The Australian dollar held steady on Friday, finally breaking through the 0.97 level, helped by strength in commodity prices, though growing uncertainty about the U.S. financial system left investors hesitant about pushing it any higher.

The New Zealand dollar idled as investors awaited key economic data for more clues as to whether the central bank will cut interest rates later this month.

Many investors think retail sales figures for May and second quarter consumer price index due early next week will be crucial for the central bank in deciding monetary policy, amid growing signs that the economy is slowing more than expected.

A worsening domestic economic outlook will determine the direction for the kiwi, analysts said, with the market currently seeing a 50/50 chance of a rate cut by the Reserve Bank of New Zealand at its policy meeting on July 25. The retail and inflation numbers are due on July 14 and 15 respectively.

Published on  Mon, Jul 14 2008, 05:58 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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