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JPY Falls on Downgrade, USD Edges Higher

Wed, Jul 23 2008, 22:39 GMT
by Korman Tam

Forexnews.com

7/23/2008 3:15 PM: EUR/$..1.5685 $/JPY..107.90 GBP/$..1.9979 $/CHF..1.0383 AUD/$..0.9612 $/CAD..1.0108

JPY Falls on Downgrade, USD Edges Higher

The greenback was higher against the euro and yen, rising to 1.5669 and 107.90, respectively. The dollar continues to benefit from further declines in oil, which fell to $123.63 per barrel, and renewed confidence stemming from government measures to support Fannie Mae and Freddie Mac.

Hawkish Fed commentary has also propped the currency higher. The Fed’s Plosser reiterated his view that current interest rates at 2% are pretty low and ultimately, rates have to go up. He said it was important to protect the Fed’s credibility by reinforcing its commitment to low inflation through action. Plosser added that it would be too late if the Fed waited for inflation expectations to become unanchored.

Markets will look ahead to Thursday’s economic reports consisting of weekly jobless claims and existing home sales. Weekly jobless claims are estimated to increase to 375k, up from 366k a week earlier. Existing home sales are seen slipping to 4.93 million in June units versus 4.99 million units a month earlier.

 
Yen Tumbles to All-Time Low vs Euro

The yen dropped to a fresh all-time low against the euro, just shy of the 170-level and a 7 1/2–month low versus the sterling 215.85. The catalyst for the broadbased currency decline was a government downgrade in its economic outlook.

Japan’s Cabinet Office downwardly revised growth estimates for this year, lowering its GDP forecast to 1.3%, versus 2.0% previously – attributing the lowered growth estimates to rising energy prices, a stronger yen and slowing demand from the US. Japan’s Economics Minister Ota added that “very tough economic conditions have been continuing since the start of the year.” The Cabinet Office expressed optimism that inflation would remain in check, saying “the Japanese economy is now in a lull, and the growth in workers’ wages is being stifled”, which would unlikely prompt broader increases in prices.

Dollar/yen also climbed higher, rising to a one-month high at 107.90. Interim resistance is seen at 108, followed by 108.30 and 108.65. Subsequent ceilings are seen at 109, backed by 109.40 and 109.70. On the downside, support starts at 107.50, backed by 107.15 and 106.50. Additional floors are eyed at 106.10, followed by 105.40 and 105.

GBP Edges Higher on BoE

The sterling was initially higher against the dollar, moving above the 2-level to 2.0028 following the release of the Bank of England June meeting minutes. The pound also climbed to a 7 ½ month high versus the yen near 215.85. The BoE minutes revealed a three-way split in the vote, with Tim Besley voting in favor of a 25-basis point hike while David Blanchflower voted for a 25-basis point rate cut. The minutes expressed greater emphasis on risks to inflation with discussions taking place over whether to tighten rates. The next key highlight will be the Bank of England’s August report on inflation, which will be closely scrutinized for clues as to when the next rate move will be.

Euro Loses Ground on Data

The euro extended its losses against the dollar, falling to a two-week low at 1.5669. Dragging the single currency lower were sharply weaker than expected industrial orders from the Eurozone, which posted a 3.5% decline in May versus a 2.5% increase a month earlier and a 4.4% fall, compared with 11.7% a year earlier.

Published on  Wed, Jul 23 2008, 22:43 GMT