The US dollar lingered near a one-year low against a basket of currencies as many investors awaited the Federal Reserve announcement on whether to keep interest rates at a record low. The Fed may take note of an improving economy and start curtailing some of the programs, such as the pledge to buy up to $1.45 trillion of mortgage-related securities that pumped trillions of dollars into the troubled banking system. Watch the dollar to remain under pressure ahead of tomorrow’s Group of 20 leaders’ summit. Many analysts are expecting a call to keep the economic stimulus plans in place which will boost riskier assets.
The euro remains little changed after hitting a fresh overnight high vs. the dollar.
Data from the Eurozone Flash Services Purchasing Managers Index climbed to 50.6 in September, its highest level since May 2008, but the Eurozone Flash manufacturing index missed expectations by coming in at 49.0. Data from the European Union’s statistics office reported industrial orders in the Eurozone rose 2.6% against June, reinforcing expectations that the euro will exit recession in the third quarter.
The British pound gained as minutes from the last Bank of England meeting showed a unanimous consensus to keep its current asset-buying plan of 175 billion pounds and to hold interest rates at 0.5%. The Confederation of British Industry said the UK’s recession will likely end in Q3, but the pace of recovery in 2010 will be slow, due to tight credit and weak domestic demand.
The Japanese yen reached an overnight high and retraced back to the levels seen yesterday. With the Autumnal Equinox holiday, the yen remains little changed.
The Canadian dollar is slightly lower after oil prices dropped and Bank of Canada official Deputy Governor David Longworth repeated the central bank’s warning that the strong Canadian dollar is a risk to growth. In another statement by BoC Governor Mark Carney, Canada’s economy has started a slow climb to recovery but that was only because of emergency measures taken by the government and central bank, with business activity still lagging.
The Australian and New Zealand dollars forged ahead to a 13-month and 14-month high vs. the dollar, respectively. Many investors are anticipating the Aussie and the Kiwi to continue appreciating in the near term if the Fed keeps US interest rates unchanged. Data from New Zealand showed their gross domestic products rose 0.1% in Q2, signaling the country may have emerged from recession.
The Mexican peso retreated against the dollar on speculation President Felipe Calderon may have difficulties persuading opposition lawmakers to support his 2010 budget proposal, as his political power wanes in the second half of his term.
