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Daily U.S. Forex Summary

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The dollar retreated from recent one−month highs against the euro

Fri, Aug 1 2008, 05:45 GMT
by Union Bank of California Team

Union Bank of California

The US dollar is trading sharply lower against the majors this morning as yesterday’s positive employment was overshadowed by today’s advance Q2 U.S GDP, coupled with higher than expected initial jobless claims for the weekending 26 July that showed an increase of 44k to 448k.
The dollar retreated from recent one-month highs against the euro, as lingering doubts over the health of the U.S. economy capped upside progress.
Traders await Friday's payrolls report which is viewed as key because Fed officials have indicated their discomfort with a pick-up in inflation pressures, but persistent job losses make it difficult for the Fed to consider lifting rates from 2.0%.

The Euro once again is gaining momentum, largely due to the reversal in the dollars fortunes after hitting one-month lows yesterday.
Euro found support as July inflation in the euro zone rose to a record 4.1%-- more than twice the European Central Bank's 2% ceiling -- reinforcing a view that interest rates will remain stable the remainder of the year.
Though recent data has pointed to a sharply slowing euro zone economy, ECB members Nout Wellink and Guy Quaden both stressed the need to manage inflation expectations.

The British pound remains resilient against a sliding USD, though lower against the euro as falling UK house prices and record-low consumer confidence underlined economic weakness.
Figures showed UK house prices marked their ninth straight monthly fall in June, taking the annual figure to its lowest since the data series began in 1991.
Additionally, a record low reading in the GfK index of UK consumer confidence offered more evidence that a deteriorating housing market continues to batter the wider economy, which is seen as pressuring sterling further.
Economic weakness is seen holding the Bank of England back from raising interest rates to tackle inflation, but even some of the more hawkish members have acknowledged the difficulty in setting monetary policy.

The Japanese yen recovered from recent one-month lows against the dollar as dollar negative sentiment drives markets today off weaker than expected economic data.

Weak data releases in both Canada and the United States did not bode well for the Canadian dollar.
The impetus for the loonie’s slide followed domestic data that showed the economy shrank by 0.1% in May from April, which missed expectations for a 0.2% increase.
U.S. data also put pressure on a Canadian economy that relies heavily on the United States for consuming the bulk of its exports.

Softer commodity prices and growing speculation of an earlier than expected rate cut, have pulled the Australian dollar to six-week lows against the USD, a far cry from the 25-year highs hit earlier this month.
New Zealand dollar remains near 10-month lows, pressured by a view that the economy may be in a prolonged period of recession and interest rates will fall rapidly. The National Bank of New Zealand's monthly business outlook showed companies were pessimistic about their own trading conditions for the fifth month in a row in July, the longest period of negative reading in the survey's 20-year history.
Both New Zealand and Australia have been riding on a commodities boom, but consumer demand has been cooling rapidly in recent months due to tight monetary policy and deteriorating financial conditions.

Published on  Fri, Aug 1 2008, 05:51 GMT