- The dollar traded higher on Wednesday. The euro and dollar-block currencies declined modestly, while sterling dropped to the lowest level since September. The yen was modestly higher as weakness in equity prices and subprime worries spurred carry-trade unwinding.
- The GBP/USD fell to the lowest point in 3 months after the Bank of Englandâ€™s minutes indicated the BOE will cut interest rates further. Sterling broke support at 2.00. However, short-term gains may be possible as the pair is fairly oversold. We believe any GBP/USD rally should be seen in the context of topping formation in the pair. If the pair rallies, we will sell it.
Financial and Economic News and Comments
US & Canada
- Federal Reserve Bank of Richmond President Jeffrey Lacker said the credit markets are causing significant uncertainty and economic growth to be very weak for several more months.
- US home foreclosure filings declined 10% m/m in November; still foreclosure rose 68% y/y. Lenders filed 201,950 foreclosure filings in November, for a foreclosure rate of one in 617 households, according to RealtyTrac.
- Canadian wholesale trade rose a higher-than-expected 0.5% m/m in October, Statistics Canada said. The automotive sector declined 0.3% m/m to its lowest level in a year. Wholesale inventories registered their eighth increase of the year, rising 0.6% m/m in October. The ratio of inventory to sales held steady at 1.26.
- The Ifo research instituteâ€™s business climate index fell more than expected to 103.0 in December, its lowest point since January 2006, from 104.2 in November.
- European Central Bank President Jean-Claude Trichet told a European Parliament committee in Brussels that the eurozone countries face a more protracted period of inflation that will prevent an interest-rate cut from 4.0% in 2008. The risks to price stability over the medium term are clearly on the upside, Trichet said.
- Bank of England minutes indicates the strong possibility of further BOE rate cuts. The minutes showed all nine members of the BOEâ€™s Monetary Policy Committee voted to cut interest rates by a quarter-point to 5.5% earlier this month and discussed whether slowing growth meant a bigger reduction might be needed.
- The Bank of Japan is forecast to keep its target lending rate at 0.5% at the conclusion of its two-day monetary policy meeting tomorrow.
FX Strategy Update
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