Saguaro
10-26-2007, 02:04 PM
Another volatile week on the currency markets saw the dollar fall to a record low against the euro as fears mounted over the state of the US economy.
It had all started so differently, with the dollar putting in its best one-day performance against the euro in almost two years on Monday amid a broad-based sell-off in global equities.
The dollar rallied across the board as the resulting fall in risk appetite saw speculators take off bets against the US currency, which according to data released from the Chicago Mercantile Exchange were approaching record levels.
Similarly, the yen made strong gains as investors cut back carry trade positions, in which the low-yielding Japanese unit is sold to finance the purchase of riskier, higher-yielding assets elsewhere.
However, as equity markets regained their poise, the trend reversed, sending the dollar and the yen lower.
Analysts said the dollar came under pressure as a string of weak economic data, including more bad news from the US housing market, offered further evidence of slowdown that was likely to prompt the Federal Reserve to cut US interest rates at its meeting on October 31.
Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, said the chances of US economic contraction in the fourth quarter could not be ruled out.
The dollar dropped to a record low of $1.4388 against the euro on Friday, leaving it 0.6 per cent softer against the single currency on the week. The dollar also dropped to a three-month low of $2.0570 against the pound Friday, before paring its losses to stand flat on the week at $2.0520. The dollar lost 0.1 per cent to SFr1.1620 against the Swiss franc over the week.
Surging oil prices, which powered to fresh record highs Friday, also hurt the dollar and boosted the currencies of oil producing countries, pushing the Canadian dollar to a 33-year high against its US counterpart.
The Canadian dollar, which was also helped by expectation-beating Canadian retail sales figures, rose 0.4 per cent to C$0.9630 on the week.
Soaring gold prices helped the Australian dollar climb 2.9 per cent to $0.9166 against the US dollar over the week.
The yen, however, fell 0.2 per cent to Y114.30 against the dollar as data from Japan revealed continued economic weakness.
Japanese price data released Friday showed deflation, with the core annual rate remaining negative in September for the eighth consecutive month.
Daragh Maher at Calyon said it would be a hard sell for Japanese policymakers to justify a rise in interest rates, which stand at 0.5 per cent, at next week's Bank of Japan meeting or the one in November.
"The timing of the hike of course holds significance for interest rate markets, but for the yen the greater consideration remains yield appetite," he said.
"The exact monthly timing of a 25 basis point hike by the BoJ is neither here nor there when set against the still healthy spread that would be on offer against the high yielders."
The yen fell 0.5 per cent to Y164.30 against the euro over the week, and 3 per cent against the higher-yielding New Zealand dollar to Y87.67.
But the pound was flat against the yen at Y234.40 on the week and dropped 0.5 per cent to £0.7007 against the euro after the Bank of England warned that the UK financial system remained vulnerable to shocks from the global credit squeeze.
http://news.yahoo.com/s/ft/20071026/bs_ft/fto102620071419110554;_ylt=Ai3oIED834ikxLjF6S448Em yBhIF
It had all started so differently, with the dollar putting in its best one-day performance against the euro in almost two years on Monday amid a broad-based sell-off in global equities.
The dollar rallied across the board as the resulting fall in risk appetite saw speculators take off bets against the US currency, which according to data released from the Chicago Mercantile Exchange were approaching record levels.
Similarly, the yen made strong gains as investors cut back carry trade positions, in which the low-yielding Japanese unit is sold to finance the purchase of riskier, higher-yielding assets elsewhere.
However, as equity markets regained their poise, the trend reversed, sending the dollar and the yen lower.
Analysts said the dollar came under pressure as a string of weak economic data, including more bad news from the US housing market, offered further evidence of slowdown that was likely to prompt the Federal Reserve to cut US interest rates at its meeting on October 31.
Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, said the chances of US economic contraction in the fourth quarter could not be ruled out.
The dollar dropped to a record low of $1.4388 against the euro on Friday, leaving it 0.6 per cent softer against the single currency on the week. The dollar also dropped to a three-month low of $2.0570 against the pound Friday, before paring its losses to stand flat on the week at $2.0520. The dollar lost 0.1 per cent to SFr1.1620 against the Swiss franc over the week.
Surging oil prices, which powered to fresh record highs Friday, also hurt the dollar and boosted the currencies of oil producing countries, pushing the Canadian dollar to a 33-year high against its US counterpart.
The Canadian dollar, which was also helped by expectation-beating Canadian retail sales figures, rose 0.4 per cent to C$0.9630 on the week.
Soaring gold prices helped the Australian dollar climb 2.9 per cent to $0.9166 against the US dollar over the week.
The yen, however, fell 0.2 per cent to Y114.30 against the dollar as data from Japan revealed continued economic weakness.
Japanese price data released Friday showed deflation, with the core annual rate remaining negative in September for the eighth consecutive month.
Daragh Maher at Calyon said it would be a hard sell for Japanese policymakers to justify a rise in interest rates, which stand at 0.5 per cent, at next week's Bank of Japan meeting or the one in November.
"The timing of the hike of course holds significance for interest rate markets, but for the yen the greater consideration remains yield appetite," he said.
"The exact monthly timing of a 25 basis point hike by the BoJ is neither here nor there when set against the still healthy spread that would be on offer against the high yielders."
The yen fell 0.5 per cent to Y164.30 against the euro over the week, and 3 per cent against the higher-yielding New Zealand dollar to Y87.67.
But the pound was flat against the yen at Y234.40 on the week and dropped 0.5 per cent to £0.7007 against the euro after the Bank of England warned that the UK financial system remained vulnerable to shocks from the global credit squeeze.
http://news.yahoo.com/s/ft/20071026/bs_ft/fto102620071419110554;_ylt=Ai3oIED834ikxLjF6S448Em yBhIF