The Forex Daily Digest – September 28, 2009

World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency. In remarks set for delivery today, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence. In an excerpt from Zoellick’s speech he said, “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency.” Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves.

The JPY rose to a seven-month high against the USD as Japan’s new government reiterated its opposition to intervening to stem a currency’s gain and the US Federal Reserve pledged to keep interest rates low. Sterling dropped to a three-month low below US$1.60 this week after Bank of England Governor Mervyn King was quoted by a newspaper as saying the pound’s weakness is aiding in rebalancing the UK’s economy. The USD reached a one-year low versus EUR on increased demand for riskier assets before a report next week forecast to show US job losses slowed.

The CAD fell the most against the USD since June as oil tumbled, reducing the appeal of currencies from commodity-exporting nations. The CAD weakened 2 percent over five days, the biggest loser against the U.S. dollar of all but one of the world’s 16 most-traded currencies. Officials from the nation’s central bank reiterated concern that a stronger currency impedes economic recovery.

The GBP dropped to its lowest level in almost six months against the EUR on speculation that the Bank of England favors a weaker currency to help revitalize the economy. The GBP also dropped below $1.60 for the first time since July 8th after news reports cited Bank of England Governor Mervyn King as saying the pound’s weakness was “helpful.” Policy makers said there may be “false dawns” in the recovery, according to the minutes of their most recent meeting released this week.

According to the Venezuelan Finance Minister, Caracas will “immediately” sell $3 billion in dollar-denominated bonds with various maturities. The minister was reportedly misunderstood yesterday when he said no bonds would be issued this year beyond those already approved. A Goldman Sachs analyst said that Venezuela needs to offer dollar securities to offset a 55 percent drop in oil, the source of half of the country’s fiscal revenue, and shore up the bolivar currency in the unregulated market.

German Chancellor Angela Merkel's conservative bloc appears to have won the most votes in Sunday's national election and was likely to form a center-right coalition government with a smaller pro-business party. Merkel's conservative Christian Democratic Union (CDU) and its southern sister party the Christian Social Union (CSU) won 33.9% of the vote, while the pro-business Free Democratic Party (FDP) captured 14.7% of the vote.

It’s going to be a very busy economic week. On the calendar this week watch for the Case-Shiller Housing Price Index for July, September’s Consumer Confidence report, ADP Employment Index, the final Gross Domestic Product for the second quarter, the Chicago PMI, Crude Inventories, Personal Income and Spending, Initial Jobless Claims, Construction Spending the ISM Index, Pending Home Sales, Factory Orders, Auto and Truck Sales, and then on Friday the Non-Farm Payrolls report for September along with the average workweek, the unemployment rate and hourly earnings.

Happy Trading,

James Dicks