The US dollar continues to trade weaker after the Federal Reserve cut the benchmark rate on Tuesday to near zero. The dollar is down about 11% on a trade weighted basis from its recent high in November. In economic news, jobless claims last week fell from a 26 year peak, but on a 4 week average basis continues to be at quarter century highs. Helping the dollar slightly this morning is news of President elect Obama asking for an $850 billion fiscal stimulus package to help get the world’s largest economy out of what is becoming the worst recession in 50 years.
The euro continues to make new 2 ½ month highs against the dollar as expectations that euro zone interest rates will not be cut as mush as other major economies despite a sentiment survey from the largest economy in Europe.
Germany’s Ifo institute reported that business sentiment in the region were below expectations and falling. The euro’s strength stems from comments that the ECB wants to wait till the new year to see if its 175 basis point cut since October were passed into the euro zone economy.
The British pound weakened against the dollar and continues to trade at record lows against a basket of currencies. In economic news, British retail sales rose unexpectedly in last month, but borrowing by the government are at record levels and mortgage lending fell 51% y-o-y. The underlying data all points for the BOE to continue its aggressive rate cuts to zero in order to fight off the collapsing economy.
The Japanese yen weakened against the dollar after comments from the Finance Minister stated that he had the option to intervene but made no comment to do so. In other news, market participants are pricing in a rate cut from the BOJ this Friday. The Japanese benchmark rate is at 0.3%.
The Canadian dollar hit its highest level against the dollar since November 10th. The loonie is up over 4% this week despite retail sales fell by more than expected last month and both oil and gold prices continue to fall. Finally, the leading indicator fell by its biggest amount since 1991 pointing to further rate cuts by the central bank.
Both the Australian dollar and the New Zealand dollar continues to rise against the dollar as investors re-enter into carry trades (selling a low yielding currency and buying a higher yielding currency). Both currencies are trading at multi-week highs.
The Mexican peso fell over 1% against the dollar on the heels of oil falling below $40/barrel.
