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Daily U.S. Forex Summary

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The US dollar extended gains against the yen

Thu, Jul 24 2008, 05:55 GMT
by Union Bank of California Team

Union Bank of California

The US dollar extended gains against the yen and euro as crude oil prices continue to slide. The greenback hit a 1 month high to the Japanese currency and a 2 week high to the euro following recent hawkishness from Treasury officials and Federal Reserve board members. Philadelphia Federal Reserve President Charles Plosser commented that rising inflation continues to be a problem and could force the Fed to raise interest rates even before labor and financial markets fully recover. Equity markets continue to gain as well, in a string of unexpectedly better corporate earnings from financial institutions.

The Euro dropped to both the dollar and the British pound, as new industrial orders in the Euro-Zone fell more sharply than expected in May. New orders fell 3.5% month over month and 4.4% year over year in May, prompting fears of a developing economic slowdown.

Sterling recovered versus the dollar as minutes released from the Bank of England’s most recent policy meeting, when rates were held at 5%, showed hawkishness from one policymaker. Gains remained limited as the market has already anticipated the hawkish stance considering recent data shows that UK consumer prices in June rose to their highest levels in 11 years.

The Japanese yen sunk to as low as 107.92 as risk appetite for the dollar continues to increase, supported by sliding oil prices and recovering equity markets.

Higher domestic inflation numbers did not change market outlook for the Bank of Canada to leave interest rates at 3.00%, as the Canadian dollar steadied to the greenback on Wednesday. Data showed that inflation rose past analyst expectations to 3.1% in June, up from 2.2% in May.

The Mexican peso rose to a five year high to the dollar on bets that the central bank could further raise interest rates. Peso showed as strong as 10.0231 in late trading Tuesday. A recent poll showed analyst expectations for further tightening monetary policy this year, as the central bank continues to fight three year high inflationary pressures due to global food costs.

The Australian dollar fell today as domestic inflation numbers were not high enough to rekindle momentum for continued rate hikes. The futures market shows a 50% chance of a rate cut by the Reserve Bank of Australia after data released Wednesday showed the consumer prices index up 1.5% in the 2nd quarter.

The New Zealand dollar fell a two week low against the American dollar as investors awaited the central bank’s monetary policy decision on Thursday.

Published on  Thu, Jul 24 2008, 05:57 GMT