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European and US summary

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Yen Rallies, Traders Await Jobs

Sun, Sep 7 2008, 14:33 GMT
by Korman Tam

Forexnews.com

9/4/2008 10:58 PM: EUR/$..1.4273 $/JPY..106.95 GBP/$..1.7562 $/CHF..1.1117 AUD/$..0.8182 $/CAD..1.0676

Yen Rallies, Traders Await Jobs

The yen rallied sharply across the board, advancing to 186.20 against the sterling, 150.59 versus the euro and 105.71 to the dollar. With global equity bourses posting sharp losses, traders scaled back carry trades as a result of the heightened risk aversion. Meanwhile, the greenback jumped to its highest level since October 2007 against the euro at 1.4213 and a fresh 2 ½-year high versus the pound at 1.7562.

The key highlight in the Friday session will be the US labor report for August, with consensus estimates calling for a loss of 75k jobs in non-farm payrolls versus a loss of 51k jobs from July. The unemployment rate is seen remaining unchanged at 5.7% while average earnings are also expected to hold steady at 0.3%.

Although US economic fundamentals continue to deteriorate it remains to be seen when a shift toward an easing stance by the FOMC will materialize given the current inflationary outlook. Dallas Fed President Fisher expressed concerns over inflation, saying “it is pretty clear that trend consumer price inflation has accelerated over the past few months”. Further, he added that “while it seems pretty clear that economic momentum is slowing, the jury is out on whether lesser momentum will be sufficient to translate into the relief on the price front over the intermediate to longer term”. Fisher expects the economy will “suffer anemic growth for the current and perhaps next couple of quarters”. We expect the Fed to leave rates unchanged over the remainder of the year, and foresee a shift toward interest rate cuts in Q1 2009.

The sterling and euro continue to come under renewed selling pressure amid burgeoning fears that both the UK and Eurozone may be headed toward recessions. Both the BoE and ECB left interest rates unchanged when they announced their policy decisions yesterday. Nonetheless, we anticipate the next moves by both respective central banks to be rate cuts in light of continued deterioration to economic fundamentals.

ECB President Trichet, in his post meeting press conference, offered a downgraded assessment for the Eurozone economic outlook, expressing concerns that the economy will weaken substantially. However, the Bank also changed its rules on loans, tightening banks’ collateral requirements to stem the fallout from the mortgage crisis.

Published on  Sun, Sep 7 2008, 14:33 GMT