Overall: As sentiment continues to improve concerning the global economic recovery, the dollar continues to weaken against the other major currencies as traders become risk tolerant and move away from the greenback as the need for a safe haven wanes. The dollar was already moving lower ahead of the release of the minutes from the latest FOMC meeting and the downward move accelerated after it was revealed that some policy makers entertained the notion that the Federal Reserve may need to boost its asset purchases in order to spur growth, which causes concern that the market will be flooded with dollars. The dollar weakened against all of the other major currencies on the day.
Aside from contemplating the need for additional bond purchases, the minutes also revealed new forecasts. The new projections now see the economy shrinking between 1.3% and 2% in 2009 and increase between 2% and 3% in 2010. Core inflation is projected to rise 1% to 1.5% in 2009 and 0.7% and 1.3% next year. The unemployment rate is now projected between 9.2% and 9.6% this year and 9% to 9.5% next year.
The Euro (Eur/Usd) The euro moved much higher on Wednesday as the dollar weakened across the board. Signs that the credit market is easing and a general improving outlook on the global economy are leading traders to increase risk and forego the safety of the dollar. The pair gained 140 pips on the day and closed near the 1.3770 level after breaking above 1.3800 intra-day.
The Pound (Gbp/Usd) Cable had another stellar day on Wednesday, gaining another 270 pips and amassing almost 600 pips for the week. The pair is now trading at the highest level seen this year helped by rising global equity markets and strengthening commodity markets leading traders move from defensive positions and accept additional risk. The pair has now broken above the 200 day simple moving average and trades above all of the major daily SMA’s.
The Aussie (Aud/Usd) Although the aussie traded in a wide 125 pip range on the day, the pair closed just slightly higher, hampered by falling U.S. equities and disappointing consumer sentiment. The pair continues to trade near the 0.7745 level, above all of the daily simple moving averages. The Westpac consumer sentiment gauge came in at -4.3% last night, well below the previous month’s read of 8.3%, while the wage price index was in line with expectations at 0.8%.
The Cad (Usd/Cad) The Canadian dollar strengthened again on Wednesday as global equity markets continue to advance, despite the drop at the U.S. close, and as oil prices advance above the $61 a barrel level. The pair moved lower for a third straight day as the dollar continues to weaken in the broad market on a more positive outlook for the global economy. On the day, the cad lost 140 pips and closed just above the 1.1400 level.
The Swissy (Usd/Chf) As was the case with the other major currencies, the Swiss franc advanced against the dollar as the greenback continues to weaken in broad market. The pair broke below the 1.1000 level intraday before rebounding and closing just above that level. Swiss ZEW economic expectations came in much higher than the previous read. The -3.9 number was 23.8 points higher than last month. There are no economic releases scheduled for tomorrow as Switzerland will celebrate a Bank Holiday.
The Yen (Usd/Jpy) The Japanese yen strengthened against the dollar on Wednesday, despite U.S. equities closing lower and the Japanese economy contracting at a record pace. The pair dropped more than 100 pips on the day, closing below the 95.00 level. The pair moved below the 100 day simple moving average and now trades below all of the major daily SMA’s. The quarterly preliminary GDP number came in at -4% last night, down from the previous read of -3.8% but better than the expected -4.2%.