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Daily U.S. Forex Summary

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The US dollar reached a near 13−month high against the euro

Fri, Oct 3 2008, 05:41 GMT
by Union Bank of California Team

Union Bank of California

The US dollar reached a near 13-month high against the euro and a basket of major currencies on Thursday after European Central Bank President Jean-Claude Trichet said inflation risks in the euro zone have diminished. The US Senate passed a $700 billion financial sector bailout plan late Wednesday that had already pushed the dollar higher in the prior New York session. Despite being at the center of the financial crisis, the greenback has surged this week after a number of European banks had to be bailed out. Look for the dollar to remain at highs across the board with slowing economies abroad and more trouble in the European banking sector.

As European Central Bank President Jean-Claude Trichet stated that policy makers discussed cutting interest rates as economic growth slows, it knocked the euro to a 13-month low against the dollar. The European single currency also traded at the weakest level in two years versus the yen as Trichet highlighted recent data of increased downside risks and that the threat of inflation has diminished. With Trichet acknowledging upside risks for inflation have diminished, speculation is mounting that the next move in rates will be a cut, keeping the euro under pressure.

Sterling eased against the US dollar on Thursday as data showed another steep decline in house prices and banks continue to hoard dollar funds. The Nationwide Building Society's house price index showed house prices fell 1.7 percent in September, its biggest annual drop since comparable records began in 1991. Look for Sterling to remain under pressure versus the dollar as the main focus remains on credit market tensions and the greenback is being supported by dollar demand from banks.

The Japanese yen remained range bound against the US dollar this morning as the market awaits the complete approval of the US bailout financial package.
With minimal risk appetite in the markets, look for the yen to benefit against the US dollar.

The Canadian dollar fell strongly against the US dollar on Thursday, with the greenback making rapid gains on European Central Bank President Jean-Claude Trichet's comments on risks to the euro zone economy. Most of the US dollar strength overnight came as a result of more euro weakness heading into the ECB announcement. While the Canadian dollar has fallen about 4 percent so far this week, it has outperformed other major currencies against the US dollar in the past quarter. Look for the loonie to continue trending lower with risk aversion still high and the markets still in crisis mode.

The Australian dollar held near two-week lows against the US dollar on Thursday, pressured by strong expectations of an aggressive interest rate cut next week and mounting risk aversion. The New Zealand dollar was firm on Thursday as expectations rose that the amended $700 billion financial bailout plan will be put into effect after it was approved by the US Senate.

The Mexican peso dropped to a one-year low on concern a global economic slowdown will reduce demand for emerging-market assets. High-yielding currencies and emerging-market currencies and equities are being hurt by investors shifting their funds toward expecting a global recession given the current financial environment.

Published on  Fri, Oct 3 2008, 05:43 GMT