Foreign Exchange Market Daily Update

The US dollar fell to an all time low against a basket of currencies late yesterday and continues to weaken this morning after a lower than expected durable good report. New orders for U.S. made durable goods fell 5.3% in January, the biggest drop in 5 months. Expectations were for a drop of 4.0%. After yesterday's weak consumer confidence report and this morning's weak durable goods report, investors look for another 0.50% rate cut next month by the Federal Reserve board to fend off a recession.

The Euro climbed to a lifetime high against the US dollar after hawkish comments from ECB Governing Council member Weber stated that expectations for the ECB to cut rates fail to consider the dangers of higher inflation. Aiding the Euro was yesterday's German corporate sentiment index rose to 104.1, beating even the highest forecast. This data will further reduce the likelihood of a Euro-zone rate cut which some expect in June.

Sterling fell slightly against the greenback after Britain's largest mortgage lender HBOS fell over 8% dragging down other UK banks after it missed forecasts indicating the spillover affects from the subprime fallout has not been fully priced in. In economic news, Britain's GDP report showed household spending growth was negligible and inventories grew at its fastest rate in 20 years. Investors expect further slowing of the British economy on the heels of falling home prices, the credit crunch, and a weaker global economy.

The Japanese yen strengthened against the US dollar after another weak US economic report. The yen is trading near 1 month highs against the dollar.

The Canadian dollar strengthened against the greenback for the third day nearing 2 month highs on record oil and gold prices. Oil is at $101/barrel and gold is $960/barrel helping the commodity rich nation's currency. The loonie has risen 3.2% against the greenback, the most since 1995.

Both the Australian and New Zealand dollars reached multi-decade highs against the US dollar on the heels of record level commodities prices and very attractive yields.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

Posted in: Forex