Foreign Exchange Market Daily Update
The US dollar is unchanged following today's release of December retail sales. Though the number was slightly worse than expected, falling for the 6th consecutive month to 2.7% compared to the expected 1.2%, the impact has been minimal. With risk aversion the main driver in the market, moves should be relatively subdued today ahead of tomorrows ECB meeting, where a rate cut is expected.
The euro extended its fall against the dollar as concerns about the global economy rose on the back of Standard & Poor's reduction of credit ratings on Greece's sovereign debt to A-/A-2 with a stable outlook. Greece is a smaller member of the EU, though the risk that other mentioned countries like Spain which could have their rating cut has euro traders spooked.Markets remain focused on Thursday's verdict on interest rates from the European Central Bank.
The British pound received a boost, after the British government launched a scheme to help cash-strapped small firms. The UK government announced measures to provide 20 billion pounds in lending to small business and a 75 million pound enterprise fund to invest in firms needing equity. However, the pound fell from highs, as news of over 2,000 job losses at Barclays caused UK shares to fall over 2%. GBP sentiment is still very weak due to the gloomy outlook for the UK, which is reflected in the data released yesterday showing the UK unexpectedly recorded a record trade deficit of 8.33 billion pounds in November, with a weaker pound failing to bolster exports.
Benefiting from the extreme aversion to risk in markets right now, the Japanese yen continues to maintain its strength, holding at multi-month highs against both the higher yielding euro and pound.
The Canadian dollar remains range bound, despite a reprieve in falling oil prices as the Saudi's vow to cut oil production and a record cold snap in the mid-west, heightens demand for oil.
The Australian dollar climbed from one-month lows against the USD, with analysts saying its recent sell-off may have been overdone, though nerves remained ahead of key jobs data on Thursday. Australian employment data for December is expected to confirm recent gloomy indicators on the labor market, with the jobless rate seen rising as the economy slows. Jitters about the New Zealand dollar had also spread to the Aussie given that both run hefty current account deficits and rely heavily on commodity exports. The kiwi plummeted 3% yesterday after Standard & Poor's said it could downgrade New Zealand's foreign currency debt rating. Though it was able to recover slightly, sentiment towards the currency remained weak. The next central bank rate review is on Jan. 29 where there is an outlook for a 100 bp cut followed by another 50bp cut in March.
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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