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Daily FX Market Commentary

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USD and JPY have strengthened

Fri, Jul 3 2009, 06:57 GMT
by Flemming J. Nielsen

Danske Bank A/S

Key news

• Trading has been dominated by yesterday’s bleak employment report, but there has only been modest movement since market close in Europe yesterday.
• USD and JPY have strengthened and SEK has continued to weaken overnight albeit only slightly. Asian stock markets mostly in red this morning but have recovered from earlier lows.
• China wants to discuss global reserve currency at next week’s G8 summit.

Markets Overnight

Trading has been dominated by yesterday’s bleak employment report in the US, see Flash Comment - US: Employment report disappoints. However, with the US market closed today for Fourth of July holiday there has been very little movement in the markets overnight.

In the US the stock market closed down sharply on the back of the weak employment numbers, but there has been little change since the market close in Europe yesterday. There was weakness across the board with even defensive utility and health care stocks losing ground.

In Asia most stock markets are in negative territory this morning, but the markets have recovered from earlier lows.

US bond yields yesterday declined on the back of the weak labour market report with largely similar declines in long and short-term bond yields. Again there has been very little change since market close in Europe yesterday.

In the US the Treasury has announced it will hold four auctions next week and sell USD 73bn of notes, bonds and inflation-protected securities. The Treasury will sell USD 8bn of 10-year Treasury Inflation Protected Securities on 6 July, USD 35bn of 3-year notes on 7 July, USD 19bn of 10-year notes on 8 July and USD 11bn of 30-year bonds on 9 July. The size of the auctions is in line with market expectations.

In the FX markets USD and JPY have both benefitted from the decrease in risk sentiment in the markets yesterday. In Scandinavia SEK has continued to weaken following yesterday’s surprising interest rate cut from Riksbanken. NOK is trading largely unchanged despite the plunge in crude oil prices.

On commodity markets the crude oil price is again below USD70 and has drifted lower overnight following yesterday’s plunge in the wake of the US employment figures.

According to Reuters China has asked to discuss a new global reserve currency at next week’s G8 summit in Italy and in preparatory negotiations before the summit has asked for a joint statement to be issued on reserve currencies on the second day of the summit, when China will participate in the discussions.

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Published on  Fri, Jul 3 2009, 07:03 GMT