by Darrell Jobman, Editor-in-Chief,

Commentaryfor Thursday, September 4, 2008


The Euro was generally firmer in European trading ahead of the ECB interest ratedecision, but was unable to hold above 1.45 against the US currency.

The ECB left interest rates at 4.25% following the latest council meeting. In the press conference following the decision, Chairman Trichet repeated that the growth risks were skewed to the downside. The centralbank head also warned over inflation, stating that it would stay above target for a prolonged period. There was a particular focus on wage pressures and the need to avoid secondary inflationary effects. The relatively tough ECB inflation stance failed to provide a boost to the Euro with markets focussed on the growth risks. These fears were illustrated by the further 1.7% decline in German factory order, the eight successive decline.

The US PMI services-sector index rose slightly for August to 50.6 from 49.5 previously, but there was weakness in the employment component.

The labour-market data remained less favourable with initial jobless claims rising to 444,000 in the latest week from a revised 429,000 while continuing claims also continued to rise strongly. The latest ADP employment survey also recorded a 31,000 decline in private-sector employment for August which will maintain unease over labour-market trendsahead of Friday’s key payroll data and a sharp payroll decline would unsettle the dollar.

The Euro remained under pressure in US trading with particular stresses on the crosses as it weakened sharply against the yen. The Euro also weakened to 2008 lows against the dollar with a decline to lows around 1.4320.

Source: VantagePoint Intermarket Analysis Software


Asian stock markets remained on the defensive during Thursday with bourses at a two-year low and this defensive stance provided underlying support to the Japanese currency. The latest capital account data also recorded net inflows into Japan which will maintain underlying yen support.

Commodity prices will be watched closely and rallies would tend to weaken the yen, . The yen initially weakened to lows around 108.50 against the dollar in Europe, but there is still liable to be an underlying unwinding of positions.

The yen secured renewed support on Thursday from substantial weakness on Wall Street and a generally weaker tone for the Euro as high-yield currencies came under pressure. The Japanese currency strengthened sharply to highs near 153.50 against the Euro and 107.00 against the dollar with a further unwinding of carry-trade positions. Higher volatility is liable to remain a key short-term market feature.


The UK currency pushed back above 1.78 against the dollar on Thursday as the US currency drifted weaker. The latest Halifax Bank survey recorded a further 1.8% decline in house prices for August, but this failed to have a significant impact as major weakness has been priced in.

The Bank of England left interest rates on hold at 5.00% following the latest policy meeting. There was no statement by the bank following the meeting and the minutes will be released in two weeks time.

Given the growth stresses, markets remain convinced that the Bank of England will move to cutting rates as soon as there is evidence that the inflation rate has peaked and there were continuing expectations of a cut by November.

Sentiment remained on the defensive and suffered renewed losses against the dollar. Sterling, however, rallied to near 0.81 against the Euro and there was a small gain in the trade-weighted index for the first time in 12 days.

Swiss Franc

Swiss currency retained a firm tone against the Euro on Thursday and pushed sharply stronger in US trading with a move to 1.5900, the strongest level since May. The dollar pushed to highs around 1.1130 against the franc, but was unable to hold the gains as the Swiss currency secured wider gains.

An unwinding of carry trades continued to have a supportive effect on the franc as positions were liquidated, especially with European and US equitymarkets subjected to substantial selling pressure during the day.

Source: VantagePoint Intermarket Analysis Software

Australian dollar

The Australian currency retained a corrective tone in local trading on Thursday. Domestically, the trade account was significantly weaker than expected with a AUD0.7bn deficit for the month compared with expectations of a small surplus, but the impact was measured as markets were focussed on global trends.

A rally in commodity prices initially helped underpin the Australian currency, but underlying sentiment has weakened and rallies will tend to attract selling pressure quickly given fears over the, domestic, regional and global economies.

The Australian dollar weakened back to below 0.83 against the dollar in New York as equities and commodities were again sold aggressively.