News Driven Forex

The U.S. dollar recovered against the Japanese yen this morning on speculation that the U.S. government may extend assistance to troubled insurance titan AIG. Dollar volatility against the yen has leaped to six month highs as turmoil in the financial markets buffet markets, and investor sentiment swings from fear to optimism like a pummeled piñata.

The Canadian dollar weakened against its southern counterpart this morning, The loonie continues to react to falling oil prices, as Canada is a net exporter of oil. (Crude oil prices fell almost 2% today). Oil and other commodities account for over half of Canadian exports, and as other commodities have also seen a declining value, adding a further burden to the loonie.

The British pound declined against the euro and the U.S. dollar this morning, after Bank of England Governor Mervyn King told the market that inflation will peak “soon”. Furthermore, he expects inflation will slow “sharply” in 2009, which seems to confirm the market’s sentiment that British interest rates will not be rising any further, and fueling speculation that rates in the United Kingdom will fall next year. Mr. King’s comments prompted the pound to end an eight-day winning streak against the euro, falling 1.2% against the single currency this morning. Sterling’s drop against the U.S. dollar was its biggest in two weeks.

The New Zealand and Australian dollars continued moving downward in the face of escalating sentiments of doom and gloom regarding the global economic outlook. The New Zealand dollar fell to four year lows against the Japanese yen as this risk aversion continued to drive an unwinding of carry trade flows. The Australian dollar slid to a two-and-a-half year low against the yen this morning, and both currencies ebbed versus the U.S. dollar.

- contributed by Christopher Empett
Associated Foreign Exchange