Foreign Exchange Market Daily Update
The US dollar strengthened vs. most major currencies as global equity markets plunged. The Nikkei fell 9.62%, the Hang Seng Index fell 7.19%, and the FTSE fell 8.14% highlighting the overall pessimism in equity markets. Increased risk aversion has helped strengthen the dollar and yen as investors continue to deleverage. Investors will focus on the G7 meetings in Washington DC this weekend. G7 leaders are facing major pressure to contain the financial crisis as coordinated interest rate cuts this week failed to relieve investors' fears.
The euro is down against the dollar with expectations that the European Central Bank will continue to cut interest rates to battle the financial crisis. ECB officials have stressed the need for coordinated action by central bankers to help stem the crisis. Investors will keep their eyes on the G7 meetings in Washington DC this weekend.
The Sterling fell against the dollar as investors continued to flee riskier assets on fears over the global financial system. Investors expect the Bank of England will continue to cut interest rates, from the current 4.5%, as the economy faces a prolonged downturn.
The Japanese yen strengthened across the board as investors pour into the safe-haven currency. The dollar fell to 7 month lows against the yen at 97.92 yen per dollar.
The Canadian dollar fell against the dollar as commodities tanked. With the current global economic meltdown, demand for commodities has dropped sharply from earlier this year. This hurts the Canadian dollar as Canada is a major exporter of natural resources. The currency didn't find much help with employment soaring by 107,000 jobs in September and the Canadian trade surplus jumping to C$5.8 billion in August.
The Australian and New Zealand dollars tumbled today against the dollar as investors fled the high-yielding currencies. Investors flocked out of the currencies to jump into gold, government bonds, and lower-yielding currencies. The Aussie is also being hurt as it is a commodity-linked currency. With the global economic downturn, investors have fully-priced in expectations of big rate cuts in the two countries in the coming months.
The Mexican peso continued its sharp decline against the dollar with concerns on the worldwide economic downturn. The Mexican economy is looking to slip into recession with the economic downturn hurting the demand for exports. The Mexican central bank tried to help the peso as they sold 3 billion US dollars to try and stop the currency's dive.
Union Bank of California
The Bank of Tokyo-Mitsubishi Group
http://www.uboc.com
Disclaimer: This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. It is based of the most accurate information currently available, but should not considered investment advise or a guarantee of future exchange rate or trends.
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