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Daily U.S. Forex Summary

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The US dollar continued its upward trend against the euro

Mon, Oct 6 2008, 06:51 GMT
by Union Bank of California Team

Union Bank of California

The US dollar continued its upward trend against the euro on Friday after a report showed the unemployment rate remained steady in September, even while US employers shed jobs. According to a Labor Department report, US employers cut payrolls at the steepest rate in 5-1/2 years last month, slashing an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month. The market has focused on the steadiness of the unemployment rate, however, adding to the optimism surrounding the dollar, already on track for its best weekly gain versus the euro in the single currency's lifetime.

The euro fell to a record 5.6 percent weekly drop against the US dollar and hit a five-month low against sterling after recent comments from European Central Bank President Jean-Claude Trichet fuelled expectations that interest rates may be cut sooner than previously expected. With Trichet stating that European economies face increasing downside risks, growth prospects in the euro zone are rapidly dimming, possibly forcing the ECB to ease sooner and keeping the euro under pressure across the board.

Data showing Britain's service sector shrank at a record pace in September pushed sterling to cut earlier gains against the US dollar on Friday. The Chartered Institute of Purchasing and Supply/Market purchasing managers' index for services companies fell to 46.0 last month from 49.2 in August. The UK economy grew at the weakest annual pace since 1992 in the second quarter, fuelling speculation of a quarter-point rate cut by the Bank of England to 4.75 percent when it meets Oct. 9.

The Japanese yen strengthened against the US dollar for a third day after a US government report showed US employers cut more jobs last month than economists forecast, indicating the world's largest economy is headed for a recession. Investors have also dumped higher-yielding currencies and riskier assets, spooked by fears of a global slowdown and pessimism about whether the US government's bailout plan would really unfreeze the financial sector. This move is pushing the yen higher across all major currencies. Look for the yen to remain strong against the ailing euro and the commodity backed currencies.

The Canadian dollar fell to its worst week in 38 years against the US dollar on Friday as tight liquidity put a premium on the greenback and nervous investors await a vote in the US House of Representatives on a revised rescue plan for the financial sector. Weakening commodity prices, losing steam as the global economic outlook slides, are also hurting the Canadian dollar and should continue to keep the loonie under pressure.

The Australian dollar suffered its biggest weekly percentage fall in over two decades against a strong US dollar, hurt by an international flight to safety and the prospect of hefty rate cuts at home next week, possibly a 50 basis point cut. The New Zealand dollar came off two-week lows on Friday but is still under pressure by a firmer greenback and investor caution ahead of a US vote on the $700 billion financial bailout plan.

The Mexican peso slumped to a one-year low as investors continue to worry about frozen US credit markets and a planned $700 billion financial rescue package.

Published on  Mon, Oct 6 2008, 06:53 GMT