Foreign Exchange Market Daily Update

The US dollar fell across the board after a report showed US consumer confidence dropped in February from 87.3 to 75.0, the lowest level in five years, as the labor market cooled and the economy waned. Consumers are worried about the economy due to the housing market slump, poor employment data and higher gasoline and food prices. These factors could threaten consumer spending, which already has slowed, and further push down economic growth.

The Euro climbed to a three-week high against the US dollar and soared versus the Japanese yen after the release of a strong German business sentiment survey. The February German Ifo index came in at 104.1, well above the expected 102.8, weakening the case for near-term euro-zone interest rate cuts and easing concerns about the health of the euro-zone's largest economy.

Sterling rose against the generally weaker greenback as the market caught up with the Bank of England's view that interest rates will be cut gradually, rather than sharply. Markets expect two more UK rate cuts by year-end. Look to Wednesday's second reading of UK's fourth quarter GDP for more clues.

The Japanese yen strengthened against the US dollar after a weak US report trimmed expectations of additional aggressive interest rate cuts from the Federal Reserve.

The Canadian dollar soared versus the greenback, supported by a solid domestic economy and record oil and gold prices. The commodity-linked currency has risen 2.6 percent this week with gold prices near 950.00 and crude oil above 100.00.

The Australian and New Zealand dollars continue gaining against the US dollar and Japanese yen, boosted by increased risk appetite as investors piled into higher yield currencies. Stock markets are widely used as a gauge of risk appetite and gains from this weak have encouraged a return to carry trades.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

Posted in: Forex