USD
Dollar Advances on Deepening Global Recession
The Dollar rose against most of its major currency pairs on Monday. This comes about as falling global equity markets and economic deterioration in Japan and Europe, which are more serious than the slowdown in the U.S., have boosted safe-haven demand for the U.S currency. Nevertheless, the U.S. has also released gloomy economic data. Last Friday's report showed that the U.S. unemployment rate rose to a high of 8.1% in February, as employers cut 651,000 jobs. This reveals that the U.S. has the highest unemployment rate since 1983. Analysts expected weak figures from the U.S. to lead market participants to take positions against the USD in Monday's trading. However, in many respects, much the opposite has happened.
In late afternoon trading, the USD was up 0.4% against the Yen at 98.78, and ended yesterday's session up over 90 pips at the 98.94 level. Against the EUR the Dollar fluctuated between gains and losses, finally by settling virtually unchanged at 1.2674. The Dollar's biggest gains came against Sterling, which fell to 1.3740, the lowest level since Jan. 26th. The currency cross ended yesterday's session with the GBP down nearly 300 pips against the greenback at the 1.3843 level.
Analysts predict that the Pound is likely to continue to remain vulnerable to the woes of the Britain's financial sector as investors fear more gloom, despite massive government capital injections and guarantees. Meanwhile, the USD is likely to strengthen further against the JPY, as the deepening downturn in Japan has taken the lure off the Japanese currency as a safe-haven in recent weeks. A number of analysts hold the opinion that intensified worries over grim Japanese data might take the Dollar back within sight of the key 100 Yen mark.
Looking ahead to today, there are 2 data releases that may help determine the Dollar's strength in late trading today. These are the IBD/TIPP Economic Optimism and Whole Inventories figures both at 14:00 GMT. The thing that is likely to impact the Dollar the most is U.S. Federal Reserve Chairman Ben Bernanke's speech about the state of the U.S. economy at 12:30 GMT. Forex traders are also advised to follow economic news events coming out of the Euro-Zone, Japan, and Britain, as these are likely to help determine the Dollar's main currency crosses by the end of today's trading.
EUR
Pound Crashes to a 6 Week Low vs. the U.S Currency
The Pound dropped to a record low against the Dollar yesterday, and also weakened against the EUR on growing concerns about the outlook of the British banking sector. The GBP was also hit as the Bank of England (BoE) this week will begin to implement its buying of 75 billion sterling worth of assets to boost the money supply, analysts said. The (BoE) said on March 5 that it plans to buy 75 billion pounds of gilts and corporate debt funded by new money in the next three months as it tries to bring down Interest Rates and pull the economy out of its first recession in 17 years.
The British currency fell 2% yesterday against the USD to $1.3843 from $1.4123. Against the EUR, it declined 1.8% to 0.9151 from 0.8970. It also fell 1.3% vs. the Yen to 137.03 from 1.3847. Worries amongst investors were intensified yesterday after Lloyds Banking Group; the biggest mortgage lender said over the weekend that the British government would get a stake of up to 77% in the bank after agreeing to underwrite 260 billion pounds of risky assets.
Market players expect the Sterling to weaken further, in line with medium-term monetary and fiscal realities. Therefore investors should buy the EUR against the Pound following the Bank of England's decision. As the British Pound continues to persistently sell off on each and every negative news flow from British banks, it might drop vs. the USD to as low as the 1.3650 level in the coming days.
The EUR may also make losses against the Dollar, and trade at the $1.2500 by week's end as European finance ministers resist doing more to boost their economies. This is even as the World Bank forecasts the biggest global recession since World War II. The European Central Bank (ECB) has already reduced its main refinancing Rate last week to 1.5%, and ECB President Jean-Claude Trichet stated at a press conference in Basel, Switzerland yesterday the world may be approaching a turning point, and that further measures taken by central banks and governments are likely to stimulate economic growth.
JPY
Yen Slides on Weakening Economy
The Yen fell broadly on Monday on speculation economic conditions in Japan are deteriorating due to the global recession, thus reducing the appeal of the Japanese currency. The JPY declined against most of its major currency pairs after a Cabinet Office report prediction showed that the leading index of business conditions fell to 77.4 in January from 80 in December. Japan fell into its first current account deficit in 13 years in January as the global recession crushed export demand and income from overseas investment. Making the situation worse, Japanese policy makers have been slow to respond to deteriorating economic conditions, denting investors' confidence in the country's ability to tackle the economic crisis.
The JPY dropped to 125.45 per EUR from 124.23 yesterday, and fell to 98.94 versus the Dollar from 98.02. Analysts say that the incoming data is likely to illustrate the vulnerability of the Japanese economy, and therefore the JPY is likely to remain weak, particularly as we head into end of the fiscal year. Also, the Yen is likely to weaken further since the Japanese authorities that a weak Yen is their intention. The Yen has slipped 11% since a 13 year peak against the Dollar in January as Japan's economy grapples with diving exports and its worst recession of the postwar era. Due to Japan's poor economic data, and the fact that the political situation remain uncertain, some investors predict a possibility of the JPY testing 100 level per Dollar very shortly.
