Yen

The mood of market pessimism continued in Asia on Thursday with a sharp decline in regional stock markets. The Japanese trade data recorded a deficit for the second time in three months. There was a 7.7% annual decline in exports and shipments fell to Asia for the first time in six years.

The trade weakness will reinforce pressure for greater action by the Japanese authorities to help support the Japanese economy. There will be calls for the Bank of Japan to cut interest rates and there will also be additional pressure for Finance Ministry intervention to prevent further yen appreciation.

The yen strengthened to highs beyond 94.50 against the dollar and, after retreating back to 95.50 as Wall Street attempted to rally, pushed back to highs beyond 94 as Wall Street slumped.  

Sterling

The UK currency was unable to regain the 1.50 level against the dollar on Thursday and weakened to lows below 1.48. Sterling also weakened to lows beyond 0.8450 against the Euro.

Retail sales fell by 0.1% in October after a revised 0.5% decline the previous month. There were expectations of a more substantial decline and there will be some relief over the data even though the outlook for the economy remains very poor.

There will still be strong expectations of a further cut of at least 0.50% at the December meeting, especially with global central banks still looking to cut rates aggressively to alleviate the severe conditions.

Conditions within the financial sector will be watched very closely as the relative prospects across the major financial sectors will be an important determining factor exchange rates. Sterling will need firm evidence of stability in the banks to make significant headway.

Swiss Franc

The franc retained a generally weaker tone on Thursday as domestic economic fears increased and there was further action by the central bank. The Swiss currency dipped to fresh 2007 lows against the dollar beyond 1.22 and the franc also dipped to lows near 1.5350 against the Euro.

In a surprise move, the National Bank announced a further sharp 1.0% in official interest rates to 1.0%.  The bank has now announced three unscheduled rate cuts since the last formal policy meeting in September.

The bank’s move will reinforce fears over the economy with a particular focus on the banking sector. The trade account remained in comfortable surplus for the month, but there was a further significant decline in exports which will reinforce market fears over the economy.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian dollar weakened further to test 1-month support below the 0.63 level in Asia on Thursday with lows near 0.6250. The latest data recorded substantial Reserve Bank intervention to support the currency during October. 

Market moves will remain dominated by degrees of risk appetite and the currency will remain under pressure when fear escalates. In this context, the Australian currency dipped to lows below 0.61 in US trading as equity markets weakened and commodity price fell sharply. The central bank again intervened in the market to provide liquidity.

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