The U.S. Dollar fell sharply against major currencies except the Japanese Yen on Friday as speculators made aggressive long bets that President Obama's stimulus plan would be passed by the Senate.
Earlier in the day the U.S. reported a worse than expected Non-Farm Payroll number and unemployment rate. Traders had been expecting a job loss of 540,000 and an unemployment rate of 7.5%. The actual number of jobs lost surged to 598,000 while the unemployment rate moved to 7.6%.
Speculators took this huge loss of jobs as a reason for the Senate to pass the stimulus bill sooner rather than later. Traders bought equities with both hands early and throughout the day, driving up demand for higher yielding assets and diminishing the need for the U.S. Dollar as a safe-haven investment.
British Pounds closed higher for the week. Investors are expressing satisfaction with the Bank of England's attempts to revive its economy. The combination of interest rate cuts and stimulus plans appear to be providing optimism to the market after months of dismal economic news.
The Pound has made a dramatic recovery from just two weeks ago when traders were aggressively selling the currency in anticipation of the nationalization of a few struggling banks. New bailout money and stimulus plans designed to help the banking system and the economy has enabled the GBP USD to stabilize. Speculators looking for better times ahead for the U.K. have triggered the rally.
Look for more upside potential if the U.S. Senate passes Obama's stimulus plan over the weekend. This action will give speculators another reason to buy the Pound in anticipation of a sooner than expected revival of the U.S. economy.
After struggling most of the week, the Euro was able to post a gain against the Dollar as speculators sold the safe haven Dollar to buy the higher yielding Euro. The Euro has been under pressure lately because of the inactivity by the European Central Bank which many investors feel is behind the curve when it comes to cutting interest rates and providing economic stimulus to the ailing Euro Zone economy.
Earlier in the week the ECB refrained from cutting its benchmark interest rate instead choosing to leave it unchanged at 2.0%. This sent a message to investors that the ECB may not be on the same page as the other central banks. Traders expect a cut in March because of the worsening of the Euro Zone economy. In addition, the Euro may feel pressure or experience limited gains because of exposure to the deteriorating Russian economy and lower debt ratings of some European Union member nations.
The USD JPY posted a big gain for the week as trader appetite for risk reduced the need to hold the low-yielding Yen as a safe haven currency. For weeks the Yen has been in a holding pattern as speculators refused to continue to buy out of fear of an intervention by the Bank of Japan. Speculation that Obama's stimulus plan would be passed in the face of a terrible U.S. unemployment report also provided fuel for the rally.
The basing pattern which took place in the USD JPY for weeks finally paid off this week when a surge in U.S. equity markets triggered the need for higher yielding assets. Aggressive traders once again turned to the cheap Yen to finance the need for the better paying equities. Traders will have to watch their positions early next week as the rally may be a little overbought. Nonetheless, it looks as if the trend has turned up in the USD JPY so buyers may be encouraged to take fresh long positions on breaks.
The Canadian Dollar gained on the U.S. Dollar after the U.S. jobs report showed a greater number of jobs were lost in January than estimated. This triggered a break in the U.S. Dollar on speculation that the Senate would approve Obama's stimulus plan much faster than previously expected. Traders believe that approval of the plan will put the U.S. in a position to recover faster from the recession.
The Canadian unemployment report showed a job loss of 129,000. This was more than three times the estimate and indicated that the Canadian economy is worsening. Declining exports and falling commodity prices have keep downside pressure on the Canadian Dollar. Speculators bought Canadian Dollars in anticipation of a recovery in the U.S. economy triggering increased demand for Canadian assets such as crude oil, natural gas and lumber.
The USD CHF gained ground on the U.S. Dollar on Friday following several days of weakness. The worse than expected U.S. jobs report encouraged traders to buy the Swiss Franc in anticipation of Obama's stimulus plan becoming law. Speculators believe the stimulus plan will help the U.S. economy recover from its recession faster than other industrialized nations. This diminished the Dollar's appeal as a safe haven investment.
Gains could be limited over the near term as the Swiss National Bank is on record favoring a weaker Swiss Franc. Threats of intervention have helped weaken the Swiss lately. The possible exposure to bad Russian loans could hurt Swiss banks. This would put more pressure on the already contracting Swiss economy.
Greater demand for higher-yielding assets helped trigger a huge move to the upside in the Australian Dollar. This currency finished the week strong following the announcement of an aggressive interest rate cut and a new stimulus plan earlier in the week.
Look for more upside potential next week as greater demand for higher-yielding assets may continue if the new financial stimulus plan gets passed by the U.S. Senate this weekend.
The New Zealand Dollar posted a strong gain on Friday. Trader demand for more risky, higher-yielding assets increased throughout the day as U.S. equity markets surged. Traders are expecting the U.S. Senate to approve President Obama's plan to revive the economy. This is leading investors to believe that the U.S. economy will recover more quickly from its recession. Traders were willing to take on more risk in anticipation of the passage of the U.S. plan. Higher commodity prices are needed to give the NZD USD even more support.
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