by Darrell Jobman, Editor-in-Chief


The dollar weakened to fresh all-time lows just beyond 1.4120 against the Euro on Monday. The Euro was unable to sustain the gains and weakened back to 1.4080 in US trading with the dollar, in turn, unable to secure any momentum.

Consolidation is likely to be the dominant theme ahead of Tuesday’s US data with releases due on consumer confidence and existing home sales. The US currency will gain some significant support if both headline figure show a monthly improvement, although the housing data overall is liable to be subdued.

Euro-zone industrial orders fell 4.0% in July, but there was still a 10.9% annual increase following a sharp increase the previous month. There will still be concerns over an underlying slowdown in the Euro-zone economy. The latest IMM data recorded a sharp increase in speculative long Euro positions which will also make it more difficult for the currency to extend gains with pressure for at least a limited correction.

There will be further speculation over more aggressive verbal intervention to restrain the Euro and stabilise the dollar, especially with some reports that exchange rates would be a topic for discussion at the October G7 meetings.

The chances of central bank intervention remain very low in the short term, but there will be increased speculation over concerted G7 moves if the Euro continues to strengthen.

Source: VantagePoint Software, Market Technologies, LLC


The dollar weakened to just below 115.0 on Monday with yen trading curbed by a market holiday in Tokyo while the Japanese currency was weaker than 162 against the Euro. The yen regained some ground against the Euro later on Tuesday and was also able to consolidate stronger than115.0 against the dollar.

The LDP’s selection of Fukuda as Prime Minister should not have a significant market impact despite some concerns that the pace of economic reforms may be slowed in the short term.

The first half of the Japanese fiscal year closes at the end of this week and there will be some threat of capital repatriation which will help underpin the yen over the next few days. The impact will be magnified if there is a reversal in global stock market gains seen during September and there will be a risk that yen volatility will increase again given unstable capital flows.


Sterling pushed to highs above the 2.03 level against the dollar on Monday, but failed to hold the gains and weakened back to 2.0220 in US trading. The UK currency edged stronger against the Euro despite being unable to hold the best levels.

Bank of England MPC member Sentence stated that there were signs that consumer spending is weakening while the inflation drop was a relief. He also remarked that rising household debt has made consumers more cautious.

Sentence has been one of the most hawkish MPC members over the past year and his comments will certainly reinforce expectations that interest rates are unlikely to increase again, at least in the short term. Any evidence of significant housing-sector deterioration would renew speculation over lower interest rates within the next few months.

The latest government borrowing data was higher than expected at GBP9.1bn for August. The immediate impact will be limited, but a series of poor numbers would increase concerns over a sharp slowdown in the economy.

Swiss franc

The Swiss currency drifted slightly weaker against the Euro on Monday, although ranges were relatively narrow in cautious trading. The US currency found further support below the 1.17 level against the franc and edged stronger to 1.1740.

There will be further unease over the Baltic states currency pegs against the Euro and any breaking of these pegs would be likely to support the Swiss currency. Yen resilience will also tend to underpin the franc to some extent.

Australian dollar

The Australian dollar pushed to highs near 0.87 against the dollar on Monday before drifting weaker as the US dollar attempted to stabilise. The Australian currency resisted a drop through the 0.8650 level.

Reserve Bank of Governor Stevens stated that the domestic economy remains strong which will help support Australian dollar confidence in the short term. Commodity prices also remain strong which will provide important backing for the currency. There will be some unease over the local housing sector and the Australian dollar will be vulnerable to renewed swelling pressure if there is an increase in risk aversion and fears over global growth trends.