The US dollar rose vs. most major currencies as recession fears kept risk appetite low and a decisive win by Barack Obama to become the next US president helped bolster the currency. Holding dollar gains in check was a marked fall in three-month Libor to 2.706%, signifying a thawing in interbank lending. Dollar gains were also held in check with data that US private employers cut a larger-than-expected 157,000 jobs in October. Both the European Central Bank and the Bank of England are expected to cut interest rates on Thursday, though the market will likely reward the euro and pound as was the case for the Aussie on Tuesday.
The euro fell slightly against the dollar after a negative outlook from European Central Bank executive board member Juergen Stark. Stark said that weak Euro-zone growth and oil price fluctuations could push inflation briefly into negative territory. Euro-zone Purchasing Managers Index (PMI) was 43.6, lower than the expected 44.6. The ECB is expected to cut interest rates by a half percentage point on Thursday from the current 3.75% to help the economy.
The British pound weakened against the dollar with growing expectations of a hefty cut in UK interest rates this Thursday. The Bank of England is expected to cut interest rates to 4% or less from the current 4.5% to help the deteriorating economy. The Chartered Institute of Purchasing and Supply/Markit construction index fell to 35.1 last month from 38.8 in September. The housing construction sub-index fell to 25.2 from 26.1 in continuing signs of weakness.
The Japanese yen was slightly stronger vs. the dollar with risk aversion helping the currency. Forecasters expect the yen to stay in current levels against other major currencies as global financial weakness keep investors in the risk-averse currency.
The Canadian dollar weakened slightly against the dollar with a fall in crude oil prices as traders took profit from yesterday. Canada is a major exporter of crude oil; crude oil prices are currently at $68 a barrel, down from recent highs above $70 a barrel.
The Australian dollar pared gains against the dollar after weak economic data and steep cuts to government forecasts on the outlook for the economy. The government forecasts that growth would slow 2% in the year to June 2009 from the previous 2.75% forecast. Budget surplus is now projected to be just A$5.4 billion in 2008/2009 from an original forecast of A$21.7 billion. Building approvals were down 7.2% in September reinforcing the weakness in the economy.
The New Zealand dollar held firm as risk appetite surged on equity markets, with investors digesting news Barack Obama had been declared winner of the US presidential election. Domestic employment data is due on Thursday with analysts expecting a 0.6% fall in employment growth and the jobless rate rising to 4.3%. New Zealand holds general elections on Saturday.
The Mexican peso weakened against the dollar after a plane crash killed the nation’s interior minister and US employment data pointed towards more weakness in the economy. Mexican Interior Minister Juan Camilo Mourino died on Tuesday when traveling on a small aircraft. US private employers cut a larger-than-expected 157,000 jobs in October, which hurt Mexico as 80% of exports are to the US.
