U.S. FOREX SUMMARY
fxstreet.com
[if UK interest rates do hike, I predict the UK manufacturing recovery is short lived... pb]
U.S. FOREX SUMMARY
Wednesday, January 28, 2004. 09:42 GMT
Daily Report
By Union Bank of California
The Bank of Tokyo-Mitsubishi Group
uboc.com
Daily Update
January 27, 2004
The U.S. dollar was well supported overnight after U.S stock markets hit 21/2-year peaks on Monday. The USD soared to one-week highs against the euro and British pound as traders booked profits on recent bouts of volatility. U.S consumer confidence data is due out later today, which is expected to show a month on month increase. Markets also await tomorrow’s conclusion of the FOMC meeting. Though no change in interest rates is expected, analysts wait to see if the phrase “ fore the foreseeable future” will be dropped from the Fed’s current stance on interest rates remaining at 40 year lows. The dollar was able to break below the technical resistance of 1.2550 last night, though this move didn’t signal a broader sustains move higher for the dollar as was anticipated. A run to the recent record high of 1.2898 should not be ruled out. Yesterday, U.S. Undersecretary for Trade, Grant Aldonas said that the G7 meeting should focus more on underlying economic fundamentals rather than on currency rates. This sentiment was echoed by John Show who said that fostering economic growth, rather than discussions on currencies, would top the agenda at the upcoming G7 meeting in Florida
The euro fell to one-week lows against the USD, GBP and JPY despite unexpectedly positive economic data out of Germany. German business confidence defied markets expectations and rose to a 3-year high in January. This data is interesting, as it appears that the rising euro had little effect on consumer confidence. Various ECB finance ministers continue to reiterate their mantra, that their main concern is over rapid movements on the euro and excessive changes in the exchange rates. The possibility of a rate cut, though unlikely, will likely be discussed at the next ECB meeting on February 5.
Political risks surrounding the British pound helped to draw it down to one-week lows against the USD. As Prime Minister Tony Blair is mired in the most perilous 48 hours of his term, with the possibility that he may need to call for a vote of confidence tomorrow, the pound has receded from it’s recent highs. The British economy is still steaming ahead as manufacturing data released today was positive, reinforcing the likelihood of the BoE raising interest rates again in early February.
The U.S. dollar continued its volatile gyrations against the Japanese yen, seesawing between fresh 3-year lows at 105.63 and the 106 level. BoJ intervention continues to be the source of the dollar’s ability to remain above the 106 level, though we have not been able to regain this level in U.S trade today. Traders continue to test BoJ resolve to intervene in markets in order to protect the export-led recovery. Particularly after comments from Ministry of Finance officials reiterated the likelihood that Japan will act against sudden moves in the FX markets.
The Canadian dollar continues to trade within its recent ranges after falling victim to profit taking after the Bank of Canada’s recent decision to lower interest rates to curb export damaging Canadian dollar strength. Markets believe that there is a definite possibility that the BOC may cut rates again over the short term to keep their export markets afloat and profitable.
Consolidation has also hit the bourgeoning Australian dollar. Though this is likely just a pause before the currency continues to appreciate, we have not seen any significant movements away from recent levels. Overall, the Aussie remains strong due to dollar weakness and recent capital flows out of Canada after monetary policy adjustment. The Australian dollar demonstrates potential to strengthen further and the central bank is expected to raise rates by 25 basis points when they meet in February. |
