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The Forex Daily Digest – February 1, 2010

The USD fell against the EUR this morning after a report showed U.S. consumer spending increased less than economists expected in December. The EUR posted a modest rebound from last week's steep plunge after data showed stronger-than-expected activity in the euro-zone manufacturing sector. The EUR dropped last week as worried grew over Greece's ability to cut its deficit from more than 12% of gross domestic product last year to less than 3% in 2012.

The GBP fell versus the USD and the EUR as a report showed housing prices in the United Kingdom posting an annual decline and banks granting fewer mortgages last month, prompting concern the economic recovery is stalling. BOE Governor Mervyn King is managing the threat of resurgent inflation against the risk of a relapse in growth after GDP barely moved in the fourth quarter. Officials must also measure whether the economy may need more stimuli to endure reductions in the record budget deficit after the general election, which is due by June.

The AUD traded near its lowest in more than a month as speculation the global economic recovery might slow prompted traders to trim expectations of an interest-rate increase when the central bank meets tomorrow. Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.

Commodity export prices in New Zealand fell for the first time in three months in January amid a decline in returns for dairy products and a gain in the nation’s NZD. Prices in local dollars fell 1.2 percent from December. The NZD rose to a two-month high during January while dairy prices fell in world markets for the first time in seven months. From a year earlier, prices in the NZD have gained 5 percent. Prices on world markets have surged 37 percent, and the NZD’s gains have all but wiped out those benefits.

President Obama revealed a $3.8 trillion budget for 2011 that attempts to balance two competing goals: continued government spending to boost the fragile economic recovery and controlling the nation's deficit. Obama is currently under pressure to convince investors like China that he has a realistic method to control the country's deficit and debt over time. Polls show that voters are also worried by the state of U.S. finances, and he plans to create a bipartisan fiscal commission to figure out future options.

A top White House officials told the World Economic Forum over the weekend that growth may be springing back faster than expected but recovery remains fragile and a better balance is needed between exporting and importing nations. Growth in U.S. GDP has increased optimism about the outlook for global economic growth but White House economic advisor Larry Summers told delegates at the World Economic Forum in Davos, Switzerland that a significant price of unemployment would be paid for some time to come.

On Tuesday’s U.S. economic calendar watch for December’s Pending Home Sales, as well as U.S. Auto and Truck Sales. Scheduled earnings are Archer-Daniels-Midland, Entergy, Manpower, BE Aerospace, Hershey Foods, DR Horton, Kraft Foods, News Corp, Pepsi Bottling, UPS, Whirlpool, AFLAC, JDS Uniphase, MetLife, and Lexmark.

Happy Trading,

James Dicks

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