USD Advanceds to 6 Month Highs vs. Euro

Growing speculation that the global economy is heading into a slowdown has helped the U.S. dollar advance against the euro. The German Ifo Institute released its index of German business confidence this morning. The index fell to 94.8; it’s lowest in three years and significantly worse than the 97.2 reading that had been expected. This news and other negative news about other economies around the world has helped raise the outlook for the U.S. dollar since many analysts believe the U.S. economy has weathered the greater part of the credit crisis storm.

House loans for home purchases in the United Kingdom fell 65% from a year earlier in July. The news reinforces the view that British interest rates have peaked and will next be moving downward. The news sent sterling lower by almost a full percent against the U.S. dollar and hitting its lowest level against the greenback since July 2006.

The U.S. dollar also rallied against the Japanese yen and other currencies as it benefited from a boost in U.S. consumer confidence. The Conference Board reported that its index of consumer sentiment rose from 51.9 in July to 56.9 in August as consumers responded happily to dropping gasoline prices.

The Canadian dollar rallied to three week highs against its southern counterpart this morning, benefiting from rising crude oil prices. Oil prices were on the rise due to fears that Hurricane Gustav may move into the Gulf of Mexico and impact oil production. As a major oil exporter, Canada’s currency often benefits from rising energy prices.

- contributed by Christopher Empett
Associated Foreign Exchange

USD Range Bound; Markets Thin

The U.S. dollar rallied against the euro and sterling, and pared earlier losses against the Japanese yen after the latest existing home sales data came out. Existing home sales rose to an annual rate of 5 million units in July, according to the National Association of Realtors. This was almost a million more than expected, and raises hopes that the plunge in existing home sales is nearing a bottom. However, the credit crisis still overshadows the U.S. economy as home inventories also rose.

The Japanese yen and Swiss franc rose significantly against most of the major currencies on the continued risk aversion that has investors staying away from the carry trade – the practice of financing investments in higher yielding assets through loans taken out in countries with very low interest rates. Columbian Bank and Trust became the ninth U.S. bank to fail in the U.S. this year, and American International Group is expected to post a hefty quarterly loss on the back of mortgage related losses.

The South African rand fell against the U.S .dollar for a second consecutive day on speculation that the South African inflation report will reflect inflation staying above the central bank’s target level for a 15^th month. The rand is also being dogged by speculation that a global economi8c downturn will translate into diminished demand for the gold and other commodities that are the lifeblood of the South African economy.

- contributed by Christopher Empett
Associated Foreign Exchange

U.S. Dollar Rallies Into Weekend

The U.S. dollar was enjoying greater buoyancy this morning, boosted by a rumour that a South Korean bank is “considering” making a significant investment in beleaguered Lehman Brothers Holdings, Inc. This news raises hopes that U.S. financial companies will be able to weather the storm created by the credit market crisis.

The U.S. dollar also beneficiated from market speculation that yesterday’s sharp drop against the euro – the dollar’s biggest single day plunge since June – was overdone. Add to this continued evidence that the European economy is slowing – as exemplified by a drop in European industrial orders – and things look relatively upbeat for the dollar. Nevertheless, the dollar is almost one percent weaker today than it started the week, making this the dollar’s first weekly drop against the euro in six weeks.

The Australian and New Zealand dollars are on course to end the week stronger against the U.S. dollar, boosted by a sharp increase in commodity prices – the biggest weekly jump in 33 years – that is expected to boost the value of exports.

The British pound fell sharply against the U.S. dollar this morning, down 1% against the greenback in the wake of news that British economic growth stagnated in the second quarter. It is the fifth consecutive weekly loss for the pound, making this its longest losing streak since February 2006.

The Canadian dollar weakened against the U.S. dollar for the first time in four days this morning. Oil prices dipped, a negative for oil-rich Canada, and after rising for two weeks many traders feel it was time for a little profit taking on the loonie’s gains.

- contributed by Christopher Empett
Associated Foreign Exchange

Dollar Weakens On Credit Market Fears

After a long, healthy rally the dollar took a stumble this morning, slipping against most of the major currencies. The Financial Times reported that Lehman Brothers failed to sell a 50% stake to investors – news that re-awakened fears about the broader implications of the global credit crisis that had slowed to a simmer in recent weeks. Now the market is back too worrying that there will be further write downs in financial markets. This, coupled with significant jumps in crude oil prices, has triggered the dollar’s steepest single day decline in over a month.

The Japanese yen and Swiss franc rose against all the major currencies as the renewed risk aversion caused a further unraveling of the carry trade. Investors sold higher yielding assets and repatriated the funds to the country with low interest rates where investors took out loans to finance the investments in higher yielding assets.

Oil prices rose for a third day, boosting the Canadian dollar which enjoyed its biggest gain against the U.S. dollar in six weeks. Oil prices rose to over USD 119.00 a barrel, and since Canada is a net exporter of oil strong oil prices tend to favour the loonie.

The British pound fell against the euro this morning on news that U.K. Retail sales fell at the weakest annual rate in 17 years this July. This reinforces speculation that British interest rates could fall, pulling the pound lower. However, the poor news from Britain was little help to the U.S. dollar, which was weaker against sterling this morning as traders ponder the U.S. economic outlook and how much more pain the credit market crisis is likely to cause.

- contributed by Christopher Empett
Associated Foreign Exchange

USD Still Volatile; Worries Remain

The U.S. dollar failed to gain traction against the euro this morning, even though the Producer Price index number for July showed a gain of 1.2% in July. Although this reflected lower inflation than in June, it was still almost double the expected rate for July. Nevertheless, the market remains anxious regarding the pace of the dollar’s recent rally and the possibility that the dollar has moved too far, too quickly. This fear is at the heart of the dollar’s inability to break out higher – traders are assessing its current condition and evaluating what moves they should expect it to make next.

The Japanese yen rose to a three month high against the euro this morning. Heightened risk aversion, driven by the credit market crisis and the fear that major financial firms will continue to report large losses, have reduced investor demand for higher-yielding assets that were normally financed by money borrowed at low interest rates in Japan.

The Canadian dollar was treading water this morning despite news that wholesale prices rose at their fastest pace in over a year. Statistics Canada reported that wholesale prices rose 2% in June, almost trebling the rate of growth expected. The news raises hopes for Canadian interest rate hikes, but the loonie did not advance much on the news because it continues to be dogged by weaker prices of gold, oil and other commodities. Commodities account for over half of Canadian exports.

The British pound fell to a two-year low against the U.S. dollar this morning and continued its downward trend versus the euro. Bank of England policy maker Tim Beasley predicted that inflation will fall by the end of next year, fueling the ongoing speculation that interest rates in the U.K. have peaked. The pound has now weakened against the U.S. dollar for 13 consecutive days, making this its longest downtrend in over 37 years.

- contributed by Christopher Empett
Associated Foreign Exchange

USD Retreats on Fears Rally is Overdone

The U.S. dollar retreated from the seven-month highs it posted against the Japanese yen and headed south versus the euro, Aussie dollar and several other majors. The U.S. dollar had touched six month highs against the euro on evidence other global economies are slowing.

However, there has been anxiety that the U.S. dollar was rising too quickly and now the market is nervously anticipating two pieces of data this week. The market expects the annual rate of housing starts to fall to 960,000 units in July, which would be a seventeen-year low. The official number will be released tomorrow.

Traders are also nervous about another figure coming out tomorrow: The Labor Department will release Producer Price data, and analysts expect that it rose just 0.6% in July. If these numbers are as weak as expected, that undermines the case for the Fed to raise interest rates and could open the door to some further dollar weakness, which is why the market has grown more cautious ahead of the publications of these figures.

The British pound weakened against the U.S. dollar and plunged toward two year lows against the euro this morning. Sterling was ground lower as a result of news that U.K. house prices suffered their biggest monthly decline in six years this August, which boosts expectations that the Bank of England will lower interest rates.

- contributed by Christopher Empett
Associated Foreign Exchange

USD - Fifth Consecutive Weekly Gain

The U.S. dollar is stretching its longest winning streak in over two years into the weekend. Falling oil prices and signs that economies around the world are growing sluggish continue to serve the U.S. dollar's interest. The greenback has reached six month highs against the euro and a seven-month high against the Japanese yen. The dollar has risen 2.1% against the euro this week.

The British pound sank against the U.S. dollar for the 11^th straight day, making this its longest losing streak against the U.S. dollar in 37 years. Traders are wagering that the British economy is heading into a recessionary trend that could force the Bank of England to cut interest rates.

One of the few currencies that has performed better than the U.S. dollar this week was the Canadian dollar. Canada’s trade surplus increased in June and manufacturing shipments rose, improving the outlook for the Canadian economy.

The South African rand has suffered a weekly decline for the second week, dragged lower by sagging commodity prices. Gold and platinum values headed lower this week, along with other commodity prices, and as a major exporter of these and other commodities South Africa is particularly sensitive to movements in their prices.

Euro Weakens to 5 Month Lows

Eurozone GDP contracted for the first time since the single European currency was launched. GDP shrank 0.2% in the second quarter, after growing 0.7% in the first. The German economy contracted for the first time in four years. The euro has now fallen 3.6% since last week, its biggest weekly decline since January 2007.

Commodity prices rose yesterday, boosting the Australian and New Zealand dollars higher. The Aussie dollar rebounded seven tenths of a percent overnight on the news, snapping a five day losing streak during which it had been the worst performer of the major currencies.

The rise in commodity prices, especially oil, was also helpful for the Canadian dollar which rallied overnight. Commodities, including oil, gold and copper, account for over half of Canada’s exports.

The British pound was treading water this morning after hitting 22-month lows yesterday. The pound’s most recent negative moves were precipitated by the Bank of England’s recent negative revision of its economic growth forecasts, which leads traders to anticipate British interest rate cuts.

Many traders are still fearful that the dollar is going to face a correction because the rally has seen it move too far, too fast. Some analysts also believe that the U.S. economy is still encumbered by some serious negatives that could come back to haunt the greenback. These concerns were underscored by U.S. initial jobless claims last week – there 450,000 new filings for unemployment benefits, compared with market expectations for just 435,000.00

-contributed by Christopher Empett
Associated Foreign Exchange

USD Trading 22 Month Highs Vs. GBP

The Japanese yen also rose against the U.S. dollar and surged against the euro this morning and hit two month highs against the British pound. The yen’s moves were precipitated by a reduction in carry trade activity – the practice where investors borrow money in countries with low interest rates, such as Japan, to invest in countries where interest rates are higher. With a sudden shift in the outlook for interest rates in Australia, the U.K. and Europe, coupled with the market’s creeping suspicion that commodity prices may have peaked, have caused investors to exit carry trade positions and repatriate those funds to the source countries.

The Canadian dollar fell close to its lowest levels against the U.S. dollar in almost a year, having weakened during nine of the last ten days. The loonie has slipped 5.5% since oil prices peaked on July 11.

Many analysts believe that when European GDP data is released tomorrow it will show the Eurozone’s economy shrank 0.2% in the second quarter. The fear that a contracting GDP could lead to lower European interest rates has been a key factor in the dollar’s sudden turnaround.

The British pound sank to 22-month lows against the U.S. dollar this morning after the Bank of England reduced its growth forecast. It was the ninth consecutive day of sterling depreciation. U.K. unemployment benefit claims jumped in June by the largest amount since December 1992, the latest in a tide of news that has raised fears that Europe’s second largest economy is slip sliding toward recession.

U.S. Dollar Sustains Friday Rally; Traders Remain Cautious

The U.S. dollar emerged from the weekend as strong as it entered it, retaining all of the gains that were achieved as it posted its sharpest single day rally in eight years. The dollar has rallied over four percent against the euro this month, but many analysts are striking a cautious chord, worried by the dollar’s rapid ascent and the possibility the greenback could have moved too fast, too soon.

The negative factors that have plagued the dollar over the last year, specifically the crisis in credit markets, have not gone away. Also, the U.S. housing market continues to struggle and there is anxiety over how fast the U.S. economy will grow. Underscoring, these fears, the number of U.S. foreclosure filings more than doubles in the second quarter, and the market expects to see a drop in retail sales for July when the data is released tomorrow. For these reasons, many traders are looking ahead with some trepidation, despite the dollar’s rampant charge last week.

The Mexican peso rose this morning, posting its first gains in a week as rising global stock market prices increased investor appetites for higher yielding assets in developing nations. The peso was up three tenths of a percent against the U.S. dollar and has risen 7.7% against the dollar this year after two interest rate hikes implemented by the Banco de Mexico increased Mexico’s yield advantage over the United States.

The Norwegian krone rose against the U.S. dollar for the first time in five days on news that inflation in Norway rose at the fastest pace in 7 and a half years. Statistics Norway reported that inflation rose to 2.9% in July, the highest level since February 2001. This was higher than expected and fuels speculation that the Norwegian Central Bank will raise interest rates again, enhancing the krone’s yield advantage over other currencies.

U.S. Dollar Surges; Fed Leaves Rates Unchanged @ 2.0%

U.S. dollar surges to seven-week highs against the euro. The U.S. dollar was on a rampage this morning, soaring against the euro on the hope that the Federal Reserve will strike a hawkish chord at the conclusion of today’s monetary policy meeting. The market expects the Fed to express the need to contain inflation and leave interest rates unchanged. This speculation has pushed the dollar to seven-week highs against the euro, but should the Fed fail to fulfill these hopes the dollar could be set up for a stumble later in the day.

The British pound fell to seven-week lows against the U.S. dollar on news that factory production in the U.K. fell for the fourth month in June. The 0.5% drop in manufacturing output was worse than expected – the market had expected a modest gain.

The Australian dollar sank to four month lows against the U.S. dollar after Reserve Bank of Australia Governor Glenn Stevens said that there is “scope to move towards a less restrictive stance of monetary policy.” In plain English, there is a growing possibility that Australian interest rates have peaked at 7.25% and that rates could come down in the foreseeable future.

The Canadian dollar fell again versus its southern counterpart, hurt by news that oil fell below $119.00 a barrel for the first time since May. Other commodity prices have also moved lower, hurting the outlook for the Canadian economy because commodities account for over half of Canadian exports. The Canadian dollar is plumbing its lowest level since September on the news.