The US dollar erased most of its overnight gains as investors focused on US stock market gains this morning. Investors’ wariness of risk eased after Citigroup Inc. announced they had been profitable for the first two months of 2009 and expressed confidence of their capital strength after tough internal stress tests. When stock markets gain the US dollar tends to be undermined, but at the moment market players are very nervous and capricious.
The euro strengthened against the dollar boosted by US stock futures. The euro’s momentum against the dollar was briefly dented after ECB Executive Board member Lorenzo Bini Smaghi said if the economic situation worsens and deflation threatens, the bank was prepared to cut rates to zero. However, shortly thereafter, Axel Weber expressed his view that interest rates should not fall below 1% even though the Euro Zone’s economy could remain in recession into the first half of next year.
The British pound initially weakened against the dollar after data from the UK was released, but recouped some of those losses as US stock futures rallied.
Figures showed British industrial production fell 2.6% in January, shrinking at its fastest pace since 1981. Furthermore, a survey by the British Retail Consortium showed value of like-for-like sales fell 1.8% in February.
The Japanese yen weakened against the dollar overnight, but recovered some of those losses after Citibank’s announcement. In the past month the yen has weakened against the dollar as Japan’s economy grapples with diving exports and a recession worse than the postwar era, which has created doubts that the yen was a safe-haven currency.
The Canadian dollar rallied against the greenback as oil prices rose and risk-aversion lessened amongst investors again after Citibank’s announcement of a profitable first quarter in 2009. Oil prices went up above $47 a barrel after Saudi Arabia notified customers of largely steady supplies from April to March which also pushed the loonie higher against the greenback.
The Australian and New Zealand dollar strengthened against the US dollar after nearly hitting one month lows overnight. As Asian stocks rallied overnight and US stocks rallied in early morning trade, appetite for safe haven currencies and assets dimmed, thus driving the Aussie and kiwi rally. However, the rally may be somewhat short lived as Reserve Bank of Australia will convene this Wednesday to discuss further rate cuts.
