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Daily U.S. Forex Summary

Sterling firmed after data shows UK trade deficit narrowing

Wed, Jan 13 2010, 06:20 GMT
by Union Bank of California Team

Union Bank, N.A.  |  View company's profile

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The U.S. dollar continued its weakening trend this morning except against commodity based currencies despite comments from China International Corp official, Peng Junming, that the dollar had hit bottom and had limited further room to fall, while the yen would keep falling. A rally was short lived, but did show how rapidly any comments on the dollar out of China could have an impact on the USD. The dollar then pared gains after Peng said his speech at the Chinese Academy of Social Sciences reflected his personal views.
The market had little reaction to a report showing the U.S. trade deficit widened more than expected in November.
The dollar has started 2010 lower because of growing expectations the U.S. Federal Reserve will keep interest rates essentially at zero at least through the first half of the year. Low rates tarnish the dollar's appeal from a yield perspective.

The euro continues to hold its strength against its major trading partners.
The ECB will announce its latest policy decision on Thursday. It is expected to keep euro zone interest rates on hold at a record low and signal that it remains in a neutral gear as it waits for the region's economy to firm up.

The Japanese yen is off yesterday’s 3-week lows against the USD, climbing over 1% overnight. The currency shook off earlier comments out of China that the yen will continue to weaken over the next six months.

Sterling firmed after data shows UK trade deficit narrowing. The pound gained ground after data showed the UK's trade deficit narrowing more than forecast, while a survey showed a strong rise in UK retail sales. The Retail sales data sparked optimism the UK may have exited recession in the fourth quarter.
Overall market sentiment is that the GBP will stay confined to tight ranges due to the political uncertainty ahead of a UK election due by June.

The Canadian dollar fell against the U.S. currency on Tuesday after the country's trade balance unexpectedly slipped back into deficit in November. The data showed the trade deficit totaled C$344 million as exports grew 1.1% percent from the previous month.
Additionally, commodity linked currencies were knocked down after China said it would tighten banks' reserve requirements. 

The New Zealand dollar and Australian dollars hit session lows against the U.S. dollar, following a sell-off in gold prices.
The Australian dollar fell more than 1% on the day as traders sold the Australian dollar on speculation that China's move may slow a recovery in the global economy.

Published on  Wed, Jan 13 2010, 07:19 GMT

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