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Daily FX Market Commentary

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The dollar continues to weaken against major currencies

Tue, Nov 17 2009, 07:52 GMT
by Danske Research Team

Danske Bank A/S

Key news

• Asian equity markets in red this morning despite the rally in the US after comments from Fed Chairman Bernanke yesterday that the recovery in the US economy will be restrained by “headwinds”.
• US bond yields also declined on the back of Bernanke’s comments.
• The dollar continues to weaken against major currencies. SEK and NOK are stable this morning despite the modest setback in Asian equities.

Markets Overnight

US equity markets continued their long rally yesterday sending the main indices to a 13-month high on the back of stronger-than-expected US retail sales data and the pledge by APEC to maintain economic stimulus spending. The stronger-than-expected retail sales data were to some extent driven by a demand for cars. APEC, which represents 54% of the global economy, said in Singapore that it will maintain economic stimulus measures to shore up the group’s economies. The S&P 500 climbed 1.45% and the Dow rose 1.33% yesterday.

The rise in the US equity markets came despite some bearish comments from Fed Chairman Bernanke regarding the US economy. Bernanke said that “significant economic challenges remain,” and that “the flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.” Furthermore, Bernanke said that the economic “headwinds” of reduced bank lending and a weak labour market will probably restrain the pace of the US economic recovery, warranting continued low borrowing costs.

These comments weigh on the Asian markets this morning and most Asian indices are trading in red with Nikkei down 0.6% and Hang Seng down 0.4% .

The US bond market also took its lead from the comments from Fed Chairman Bernanke. 2Y US Treasury yields fell 4bp, while 10Y Treasury yields declined 8bp as the bond market expects that leading rates in the US will be on hold for a long time.

In the FX markets there seems to be limited support for the dollar, which continues to slide against EUR, testing the 150-level yesterday. A similar picture is found against the yen, where the market is testing the 89-level. EUR/USD and USD/JPY have been stable in Asian trading this morning and are trading at the 149.6-level and 89-level respectively. The Scandi currencies continue to strengthen given the positive sentiment in equity markets although the strengthening is at a more modest pace. EUR/SEK was testing the 10.18-level and EUR/NOK was testing the 832-level yesterday. This morning the crosses are stable at these levels. EUR/DKK is testing the 744-level and remains at the strongest levels in a long time ahead of the big refinancing auctions in the Danish mortgage market.

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Published on  Tue, Nov 17 2009, 08:05 GMT