- In NY trading Wednesday, the dollar was higher against the commodity currencies but lower against the yen. The euro and Swiss franc were little changed. Sterling fell following rumors that Bank of England Governor Mervyn King canceled a trip to Asia due to turmoil in financial markets and that UK biggest mortgage lender HBOS Plc. was in trouble. The rumors were later denied, but the damage to the pound had already been done. The dollar block currencies fell on falling commodity prices as crude oil and gold prices fell dramatically.
- The USD/JPY was pressured today by renewed risk aversion and carry-trade unwinding following the last few days volatile trading. The pair has been trading in tandem with the US equity market and will continue to do so. The pair is in a clear downtrend with support in the 95-area and strong resistance at the 100-handle. There are some signs of a short-term bottom in the stock market. However, downtrends in the stock market and USD/JPY have not been broken, indicating further drops for both the US equities and USD/JPY.
Financial and Economic News and Comments
US & Canada
- US regulators for Fannie Mae and Freddie Mac cut the companies’ surplus capital requirement in an effort to expand their combined $1.5 trillion in mortgage investments and revive the US home-loan market.
- Canadian wholesale sales rose a more-than-expected 2.6% in January, to C$44.1 billion ($44.3 billion), the fastest pace since December 2006, led by rising demand from China, India and Brazil for Canada’s fertilizer, Statistics Canada reported.
- The UK unemployment rate remained at a record 2.5% low in February, the Office for National Statistics said. The jobless claimants fell a less-than-expected 2,800 in February. Average earnings rose at an annual rate of 3.7% in January, down slightly from December 2007. The data still show few signs that the effects of the credit crunch have passed on to the broader economy.
- The Bank of England’s monetary policy committee, balancing the risk of a sharper slowdown against that of higher inflation, voted 7-2 to hold interest rates at 5.25% on March 6, according to the BOE minutes that identified Deputy Governor for Financial Stability John Gieve and MPC member David Blanchflower as dissenters who wanted to cut rates 25 basis points to shore up economic growth. The BOE minutes showed Blanchflower and Gieve said prospects for the US economy “had deteriorated” while financial markets “had taken a turn for the worse.” They argued there were “downside” risks to inflation and growth and that the current interest rate was restrictive. According to the minutes, business prospects had not slowed markedly outside the financial and property sectors. “For the majority of members, despite some differences in their assessment of the risks, the balances of risks had not changed sufficiently to merit a change in bank rate this month,” the minutes showed.
- The BOE denied speculation today that Governor Mervyn King had called off a trip to Asia and that staff leave had been canceled over the Easter holiday due to turmoil in financial markets.
- HBOS Plc., UK biggest mortgage lender, said it had “ready access” to funding after falling to its lowest-ever price in London trading.
- The Bank of Japan said Masaaki Shirakawa will act as interim governor, filling a vacancy left by Toshihiko Fukui whose term ends today, following a dispute between the government and the opposition.
- Japan’s government lowered its assessment of the economy for the second consecutive month. “The recovery is pausing,” the Cabinet Office said in its monthly economic report for March. The corporate sector is weakening, business investment is flat, and production has also “flattened out,” the report showed. “We expect the economy to expand gradually with exports on a rising trend and the effect of the revised Building Standard Law having run its course,” the government said.
FX Strategy Update
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