Foreign Exchange Market Daily Update

The US dollar weakened against a basket of currencies after the New York Federal Reserve's February manufacturing index reported its largest monthly decline on record. Economists forecasted the “Empire State” general business conditions report at a +6.00 reading but was reported at -11.72 in February, a 9.03 drop from January. The disappointing report added fuel to the fire of fears for an already slowing US economy. Yesterday, Bernanke made a speech which indicated further interest rate cuts by the central bank, to continue stimulating growth. With the dismal “Empire State” reports and Bernanke's speech, many investors unwound their carry trades as their sentiment for riskier appetite weaned.

The Euro strengthened against the dollar after the New York manufacturing reported its biggest monthly decline. Although the Euro has been under pressure due to a slowing economy and inflation, ECB officials firmly reiterated that inflation is the main concern in the euro-zone than growth.

The Sterling weakened against the dollar. After Bernanke's speech cemented expectations of further interest rate cuts, the dollar lost ground against the Sterling, but has slowly steadied and strengthened against the Sterling.

The Japanese Yen strengthened against the dollar as many investors' unwound their carry trades after weak “Empire State” manufacturing reports. Additionally, a record high of dollar sales by Japanese individual investors on the Tokyo Financial Exchange increased, as they viewed the US economy falling into recession.

The Canadian dollar strengthened against the US dollar after disappointing figures from the US manufacturing index report. Although data showed that Canadian manufacturers were being hurt by the economic slowdown in the US, the report highlighted that the resiliency of the Canadian domestic economy tempered any harm.

The Australian and New Zealand dollar continued its strength against the US dollar. Although the Aussie and kiwi strengthened, gains were kept in check as investor's averted risk due to concerns over the outlook for the US economy.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

Posted in: Forex