IB FX View

Yen gains as forex markets show caution ahead of U.S. GDP

Thursday August 27, 2009

The Japanese yen continued to curry favor with investors overnight after a flat showing for equity markets on Wednesday indicated investors were struggling to breathe as stock markets hit the ceiling. Ahead of Thursday’s revision to U.S. growth data, expected to show a slight improvement from the preliminary contraction of 1.5%, the Japanese unit had risen to ¥93.67 against a dollar, which was also slightly lower against the euro at $1.4257.


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Investors were also keeping fingers crossed for a pullback within weekly initial claims data for state unemployment benefits and hope to see a decline from a 576,000 reading last week. Static data has been another layer of concern for investors wishing to see the back of the recession.

Asian stock markets continued to recoil from early-August highs over fears that growth might plateau, lifting the yen in Asian trade. The aftermath of a 1.6% decline in the Tokyo’s Nikkei index wasn’t felt so badly in Europe where stocks faced a subdued session. The yen rose to ¥133.55 against the euro. The yen hasn’t been as strong against the U.S. unit since late July.

A sharp rise for prior quarter Australian business investment was well above any expectations and led to gains for the Australian dollar, which was recently quoted in early New York trade at 83.25 cents against the dollar.

By and large weakness in commodity prices undermined the Canadian dollar given that now crude oil prices have also recoiled from a recent push close to $75 per barrel. This week’s inventory data surprise leaves the Canadian dollar down so far today buying 91.15 U.S. cents.

Suggestions by an industry leader in Britain suggesting the British financial sector was too big for its boots sowed seeds of fears for greater regulation that might hamper profitability in the key sector. Investor reaction was to take a negative reaction and the pound’s recent tumble continued with one pound today buying $1.6177. Against the euro the pound fell to 88.08 pence.

Andrew Wilkinson                                                                    

Senior Market Analyst                                                               ibanalyst@interactivebrokers.com       

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