Currency Update – Yesterday & Overnight Trading
The Japanese yen rose slightly against the dollar and euro in Asia Wednesday as short term players bought the safe haven Japanese unit on renewed concern that U.S. lender CIT Group Inc. may go bankrupt, further damaging the U.S. economy. Short term investors responded by pushing the U.S. dollar down to 93.60 in the Asian session from 93.66 in New York late Tuesday, with the euro sliding to132.93 from 133.01. On Tuesday, the euro vs dollar reached its highest level in seven weeks at 1.4278 and then retreated to end lower against the dollar, after risk sensitive currencies in general reversed direction and ceded ground to the greenback. Technical factors, including the market’s reluctance to push major currencies out of recent ranges, also played a role in the euro’s reversal Tuesday.
The British pound also fell against the dollar after the UK’s budget deficit climbed to its highest level since records began in 1993. The budget shortfall climbed to 21.4 billion in June, which beat forecasts of a climb to 25.5 billion, but fueled concerns that the government will struggle to find buyers for its assets.The Canadian dollar rose to its highest level in more than five weeks against the dollar after the Bank of Canada left its key interest rate at a record low 0.25%, whilst it’s Aussie counterpart was stronger late Wednesday as risk appetite continued to surge and domestic inflation data helped water down expectations of more interest rate cuts.
Currency Markets – Outlook Today
The euro is continuing its retreat today, along with the UK pound, as worry about risk reappears as market participants continue to watch how the crisis surrounding CIT develops. They will also scrutinize earnings reports due later in the trading day from some of the larger banks such as Morgan Stanley, Wells Fargo, the Bank of New York Mellon Corp. and U.S. Bancorp, which will provide some measure of the state of the U.S. financial sector. As a result we could see the US dollar fall to 92.80 against the yen, and the euro to 132.00 if those reports disappoint investors or concern over a potential CIT bankruptcy grows.
European stocks are expected to open marginally higher Wednesday, as the gains generated by positive earnings data are set to continue but at a lesser pace as investors pause for breath, and reconsider their appetite for risk.
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