by Darrell Jobman, Editor-in-Chief


The dollar weakened sharply to lows near 1.58 against the Euro in Asian trading on Tuesday, but strengthened back to around 1.57 at the open of New York markets. Thereafter, neither currency was able to secure a decisive advantage and the dollar was able to resist losses despite a weaker initial bias after the US events.

The US economic data offered no support to the dollar with pending home sales falling by a further 1.9% to a record low in March, although there will be some optimism that sales rose in the west after a sharp downturn over the past few months. A measure of consumer’s economic confidence also continued to deteriorate in the latest survey.

Minutes from the March FOMC meeting recorded a significant divergence in views with some members fearing that there could be a severe slowdown in the economy. Other members were more concerned over the inflation outlook and two members dissented against the aggressive 0.75% rate cut. Given the conflicting growth and inflation fears, the Fed may be looking to promote measures to boost liquidity and confidence rather than lowering interest rates aggressively further. This may provide some dollar support despite the growth fears.

There were no significant Euro-zone developments with markets still uneasy over the risks of a sharp deterioration in economic conditions. There has again been no significant comments from European officials that they will pressure for more aggressive measures to support the dollar at the forthcoming G7 meetings.


Source: VantagePoint Software, Market Technologies, LLC


The dollar was unable to make significant headway against the yen in Asian trading on Tuesday and dipped to lows near 101.80 in early Europe as equity markets came under pressure.

Domestically, parliament approved the nomination of Shirakawa as the new Bank of Japan governor which will provide some degree of support to the yen, although the choice of Watanabe as deputy Governor was rejected. The currency will still be unsettled by expectations of a downbeat assessment of economic prospects at the Bank of Japan meeting on Wednesday with interest rates likely to be left on hold at 0.50%.

The yen will continue to be influenced strongly by levels of risk aversion and an underlying easing of global fears will tend to weaken demand for the Japanese currency even though confidence will remain fragile. The dollar recovered ground to levels just above 102.50 late in US trading.


Overall sentiment towards the economy and currency remains weak and Sterling weakened to 0.7930 against the Euro in early Europe on Tuesday with further selling pressure above 1.99 against the dollar.

The latest HBOS house-price survey reported a 2.5% decline in prices for March which was the biggest monthly decline for 12 years and this cut annual growth to 1.1%. The sharp decline will reinforce fears over the UK economy with Sterling weakening to record lows around 0.7990 against the Euro and dipping to below 1.97 against the dollar.

There will be strong speculation over an interest rate cut at this Thursday’s Bank of England meeting, especially after the housing data, and the government increased pressure on the bank with Prime Minister Brown stating that the bank can cut rates. The UK currency has priced in a 0.25% rate cut to 5.0%, but there is likely to be some speculation over a 0.50% cut over the next 36 hours.

Swiss Franc

The dollar dipped to lows around 1.0070 against the franc in early Europe on Tuesday before recovering back to highs near 1.0150. The franc was unable to sustain gains through the 1.59 level against the Euro and consolidated around 1.5930.

The franc struggled to make much headway even when stock markets weakened significantly and this suggests that defensive demand for the Swiss currency remains slightly lower. Overall risk tolerances remain stronger which is curbing short-term demand for the Swiss currency.


Source: VantagePoint Software, Market Technologies, LLC

Australian dollar

The Australian dollar retained a firm tone in local trading on Wednesday despite a lack of support on domestic grounds. There was a sharp decline in the NAB business confidence index to the lowest level since 2001. The decline will reinforce expectations that interest rates have peaked and the domestic trends will pose important risks to the currency over the next few months.

Risk appetite remains firmer overall which is providing support and commodity prices have also remain strong. In this environment, the Australian dollar was able to challenge levels above 0.93 in US trading.