Foreign Exchange Market Daily Update
The US dollar strengthened across major currencies yesterday but is off its highs after yesterday's almost 8% selloff in the Dow. 'Flight to safety' continues to be the main theme in global finance as investors dump riskier assets in return for the safer greenback. In economic news, US chain store sales fell 1.1% in November versus October despite Thanksgiving weekend sales topped forecasts. December sales are expected to fall 0.4% versus last year. Expect volatile trading as governments around the world try to get a handle on the current financial and economic downturn.
The euro strengthened against the dollar despite European stocks falling roughly 1.5% despite a big selloff in the US equity markets yesterday. The European economy continues to weaken as PPI fell more than expected month to month in October. Market participants are looking for a 50 basis point cut to 2.75% but many are calling for a more drastic cut to combat the global economic slowdown.
The British pound gained against the dollar after yesterday's biggest 1 day fall since 1992. In economic news, Britain's construction sector fell at its fastest pace since records began 10 years ago. PMI data showed data showed an equally poor reading further suggesting the BOE may need to cut 100 basis points this Thursday to 2%.
The Japanese yen traded slightly weaker but has strengthened about 4.5% against the dollar in November. The BoJ kept rates on hold at 0.3% and held an emergency meeting announcing that it will accept a wider range of corporate debt as collateral in the money market operations to help credit markets.
The Canadian dollar continued its 5 day weakening trend again the US dollar as oil prices fell to 3 ½ year lows. In economic news, GDP grew 1.3% in Q3 beating estimates of 1.1%. Despite the positive GDP reading, the BoC is forecasting the economy to contract in Q4 2008 and Q1 2009. Investors are preparing for a 50 basis point cut December 9th.
The Australian bounced off 1 week lows after the Reserve Bank of Australia cut rates by 100 basis points to 4.25%, the lowest level since May 2002. Many investors expected a bigger rate cut and thus had to cover their shorts. Futures are still pricing in another 100 basis points by March of next year bringing Aussie rates down to 3.25% as the central bank tries to cushion the economy from the global recession. The New Zealand dollar remained relatively unchanged after yesterday's selloff as investors wait for New Zealand's central bank interest rate decision this Thursday. Investors now expect a 150 basis point cut to 5%.
The Mexican peso weakened against the dollar after yesterday's equity selloff. Mexico's stock market fell 4.8% and oil traded below $50/barrel, driving the peso lower
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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