• 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 England’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 institute’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 BOE’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