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Daily U.S. Forex Summary

The US dollar regained its footing against the euro

Thu, Jul 17 2008, 05:40 GMT
by Union Bank of California Team

Union Bank of California

The US dollar regained its footing against the euro, after falling to 3-month lows yesterday despite increasing signs of inflation. A larger than expected jump in U.S consumer prices for June, the largest rise in 26 years, increased uncertainty about the outlook for higher interest rates even as the economy slows. Though higher rates raise the attractiveness of dollar-denominated securities and stoke demand for the dollars to buy them, they would also choke economic growth at a time when investors worldwide are concerned that the U.S. economy could still fall into a recession. Investor attention remains focused on the U.S. financial sector, as jitters about additional bank failures loom large after the recent collapse of IndyMac. A sharp retreat in oil prices also helped the USD to stabilize.

Despite the euro’s recent gains against the USD, many analysts believe that euro levels are nearing their top at $1.60. Slowing growth in the euro zone could put a lid on additional euro gains. Today’s release of euro zone consumer price figures confirmed inflation hit a record 4.0% year on year in June, though markets had a muted reaction to this data.

The British sterling is off its recent 31/2 month highs against the USD following today’s disappointing unemployment data. UK labor market data showed the number of Britons out of work jumped by its largest amount since 1992. The Office for National Statistics said claimant count unemployment rose by 15,500 last month after an upwardly revised 14,300 increase in May. This data makes the outlook for medium term rate cuts much more probable.

The Japanese yen rose to 1 ½ month highs against the USD as risk aversion and a beleaguered dollar lent it strength.

With oil prices weakening for the second straight day, the Canadian dollar fell from recent six-week highs against the dollar, though the loonie remains well supported by ongoing concerns about the health of the US financial sector.

The Australian dollar dropped from 25-year highs following comments from the head of the country's central bank were taken as indicating domestic interest rates had probably peaked. Reserve Bank of Australia (RBA) Governor Glenn Stevens said tightening financial conditions meant it was now more likely domestic demand would slow enough to restrain inflation over time. The Aussie has gained nearly 4% in the past week on the back of high commodity prices and widening rate differentials over the United States.

The New Zealand dollar also rallied higher against the dollar as US financial sector woes filter through markets. The kiwi is preferred against the dollar as the currency provides interest rates of 8.25%, which is sharply higher than US interest rates. In the absence of any significant local data, the kiwi is seen taking its cue from the U.S. and Australian dollars today.

The Mexican peso remained range bound as investors worried about troubles in the US economy affecting the Mexican economy. The peso pared early losses on fears about the U.S. economy as expectations grew that Mexico's central bank would raise interest rates at its monthly policy meeting on Friday. Such a move would widen the spread between benchmark U.S. and Mexican interest rates and make peso denominated assets more attractive to investors.

Published on  Thu, Jul 17 2008, 05:42 GMT

Archive

• The US dollar was mixed against a basket of currencies in choppy trading
  Published On Mon, Sep 8 2008, 05:37 GMT
• 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

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