The US dollar gained against the Japanese yen on risk aversion, but fell against other major currencies after U.S. Federal Reserve Chairman Ben Bernanke on Tuesday warned the U.S. recession could drag into 2010. U.S. stocks recovered from a 12- year low after Bernanke assured the market that he preferred to support banks without nationalizing them. However, the Dow Jones opened lower this morning as U.S. President Barack Obama's speech late Tuesday failed to provide optimism. Obama laid out ambitious plans to revive the economy, but investors think his plans still lacked details on how his administration would stabilize the economy. Threat of future sovereign rating downgrades ignited further sell-off in stocks. Meanwhile, investors continue to keep a close eye on the U.S. banking sector on talk that the government could own a 40 percent stake in Citigroup.
The Japanese yen fell as investors shy away from the currency on worries about Japan's deteriorating economy. Japan reported a record trade deficit in January as its exports plunged a record 45.7 percent in the same month compared to a year ago, with record drops in exports to the U.S., Europe, and Asia. Lack of strong policy measures from Japan to revive its economy took away the yen's safe-haven status. The yen may trade at weaker levels in the next few days.
The euro rose, supported by U.S. recession worries, even though German business confidence fell to its lowest level. Gross domestic product also fell 2.1 percent in the fourth quarter, hurt by foreign trade. The European Central Bank is expected to cut rates next week, but not below 1 percent. Euro zone interest rates are currently at 2 percent.
The British pound softened following news that UK economy shrank an unrevised 1.5 percent in the last quarter of 2008, indicating deep recession. The data fueled expectations for more UK monetary easing next month.
The Canadian dollar rose, supported by higher oil prices near $41 a barrel, but gains were limited by weak opening in stock markets. Oil has dropped from a record high near $150 reached last year amid a recession and sluggish global demand. Canadian exports are expected to fall this year which would lead to more job losses. Bank of Canada is expected to cut rates by another 50 basis points to 0.50 percent on March 3. Meanwhile, ongoing concerns that steps taken by the government to stabilize the financial markets may take a while to take effect capped high yield currency gains. Both central banks in Australia and New Zealand are expected to lower interest rates in March.
10-Year Treasury Note Yield: 2.8078%
Dow Jones Industrial Average: 7,192.99 -157.79
This market summary is prepared by Union Bank of California's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.