The Forex Daily Digest – November 4, 2009
The USD traded lower, pulled down as investors showed renewed appetite for equities and risky assets, although many traders appeared satisfied to stay on the sidelines ahead of the conclusion of the U.S. Federal Reserve's two-day policy meeting. The Fed's policy committee will finish its two-day meeting later today. An announcement with policy makers' outlook for rates and the economy is expected at about 2:15 p.m. (ET) this afternoon. The overwhelming consensus is that the Fed will keep the federal funds rate steady at near-zero, where the target has been since last December.
The British pound gained ground against the dollar and the euro after a survey of purchasing managers indicated the U.K.'s dominant services sector saw activity rise at its fastest pace in more than two years. And the EUR trimmed gains against the USD and JPY while the spread between Irish and euro zone government bond yields widened after ratings agency Fitch cut its sovereign rating of Ireland.
Merrill Lynch's China economist said that China should release the yuan from its dollar peg and follow Singapore's lead in targeting a basket of currencies to determine its exchange rate. He said that linking the yuan to the dollar had done China more harm than good over the past two years, attracting both hot money inflows and international criticism, but a sudden shift to a fully market-determined exchange rate was off the table.
The Japanese central bank governor, Masaaki Shirakawa, said that the Bank of Japan will keep interest rates near zero even as downside risks to the economy subside; reassuring investors its withdrawal from credit markets does not signal an exit from its ultra-easy monetary policy. The BOJ last week decided to begin withdrawing from credit markets but extended a key loan scheme, earning grudging backing from the finance minister, who had criticized the central bank's economic outlook as too optimistic.
Australian retail sales unexpectedly dropped in September, driving down the nation’s currency as traders added to bets the central bank may pause after two successive interest-rate increases. As a result, the AUD dropped to as low as 89.71 U.S. cents and traded at 90.07 cents, from 90.35 immediately before the report. The two-year government bond yield fell 4 basis points to 4.56 percent.
The G20 policymakers are likely to maintain their promise to keep economic life-support packages in place until recovery is more certain when they meet this weekend. Finance ministers and central bankers from the Group of 20 will meet in St Andrews in Scotland on Friday and Saturday to discuss the agreements made at a leaders' summit in Pittsburgh this past September.
In economic news, U.S. mortgage applications rose for the first time in four weeks, indicating an increase in demand for home refinancing loans as interest rates on 30-year loans dipped below 5 percent. The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, fell below 5 percent for the first time in four weeks.
According to a report released by outplacement firm Challenger, Gray & Christmas, planned job cuts announced by U.S. employers fell to 55,679 in October, down 16 percent from 66,404 in September. The U.S. Institute for Supply Management's services index slipped to 50.6 last month from 50.9 in September, below economists' median forecast for a rise to 51.5, with the dividing line between growth and contraction being 50.
On the U.S. economic calendar on Thursday watch for the Initial Jobless Claims report, the third quarter Employment Cost Index, and the preliminary report on Q3 Productivity. Some of the major companies on the earnings calendar will be NVIDIA, CVS Caremark, Deutsche Börse AG, BNP Paribas, CBS Corp, Starbucks, Brinks Home Security, Canadian Natural Resources Ltd, Public Storage, CIGNA, Sirius Satellite Radio, DirecTV Group, and Unilever NV.
Happy Trading,
James Dicks
The British pound gained ground against the dollar and the euro after a survey of purchasing managers indicated the U.K.'s dominant services sector saw activity rise at its fastest pace in more than two years. And the EUR trimmed gains against the USD and JPY while the spread between Irish and euro zone government bond yields widened after ratings agency Fitch cut its sovereign rating of Ireland.
Merrill Lynch's China economist said that China should release the yuan from its dollar peg and follow Singapore's lead in targeting a basket of currencies to determine its exchange rate. He said that linking the yuan to the dollar had done China more harm than good over the past two years, attracting both hot money inflows and international criticism, but a sudden shift to a fully market-determined exchange rate was off the table.
The Japanese central bank governor, Masaaki Shirakawa, said that the Bank of Japan will keep interest rates near zero even as downside risks to the economy subside; reassuring investors its withdrawal from credit markets does not signal an exit from its ultra-easy monetary policy. The BOJ last week decided to begin withdrawing from credit markets but extended a key loan scheme, earning grudging backing from the finance minister, who had criticized the central bank's economic outlook as too optimistic.
Australian retail sales unexpectedly dropped in September, driving down the nation’s currency as traders added to bets the central bank may pause after two successive interest-rate increases. As a result, the AUD dropped to as low as 89.71 U.S. cents and traded at 90.07 cents, from 90.35 immediately before the report. The two-year government bond yield fell 4 basis points to 4.56 percent.
The G20 policymakers are likely to maintain their promise to keep economic life-support packages in place until recovery is more certain when they meet this weekend. Finance ministers and central bankers from the Group of 20 will meet in St Andrews in Scotland on Friday and Saturday to discuss the agreements made at a leaders' summit in Pittsburgh this past September.
In economic news, U.S. mortgage applications rose for the first time in four weeks, indicating an increase in demand for home refinancing loans as interest rates on 30-year loans dipped below 5 percent. The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, fell below 5 percent for the first time in four weeks.
According to a report released by outplacement firm Challenger, Gray & Christmas, planned job cuts announced by U.S. employers fell to 55,679 in October, down 16 percent from 66,404 in September. The U.S. Institute for Supply Management's services index slipped to 50.6 last month from 50.9 in September, below economists' median forecast for a rise to 51.5, with the dividing line between growth and contraction being 50.
On the U.S. economic calendar on Thursday watch for the Initial Jobless Claims report, the third quarter Employment Cost Index, and the preliminary report on Q3 Productivity. Some of the major companies on the earnings calendar will be NVIDIA, CVS Caremark, Deutsche Börse AG, BNP Paribas, CBS Corp, Starbucks, Brinks Home Security, Canadian Natural Resources Ltd, Public Storage, CIGNA, Sirius Satellite Radio, DirecTV Group, and Unilever NV.
Happy Trading,
James Dicks
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