The Forex Daily Digest – August 13, 2009

The USD overcame earlier losses against major counterparts after the U. S. Federal Reserve left interest rates unchanged, near zero percent, and said it would gradually slow its purchases of Treasuries. The Fed promised to keep interest rates exceptionally low "for an extended period of time," even as it drew encouragement from a stronger economic outlook.

The Fed will let its Treasury-buying program, part of its "quantitative easing" measures, end in October. Allowing the program end was seen as a first step that the central bank is taking a slightly less accommodative policy stance.

The USD showed little reaction to news that the trade deficit for June widened to $27 billion from a decade low of $26 billion in the previous month. Excluding oil, imports fell to the lowest level in 5 1/2 years.

The GBP weakened ahead of the release of the Bank of England's quarterly inflation report. The report said inflation would be more likely to lag rather than exceed the bank's 2% annual target in a situation in which the central bank met market expectations to begin raising its key lending rate next year and completed 175 billion pounds of asset purchases under its quantitative-easing program. Bank of England Governor Mervyn King said the British economy is likely to return to growth in the ne next few quarters but also pointed out that the recession has been deeper than anticipated and that crippled balance sheets in the banking sector.

The AUD and the NZD gained against their U.S. counterpart after the Federal Reserve said it will slow the pace of its $300 billion program to buy U.S. Treasuries, adding to signs the global recession is easing and stoking demand for higher-yielding currencies. Both currencies strengthened after the Fed statement. The JPY fell for a second day against the euro after the Fed said economic activity is “leveling out,” sapping demand for Japan’s currency as a refuge. The JPY also weakened against all 16 major currencies as Asian stocks extended a U.S. equity rally on signs the global slump is abating, encouraging investors to buy higher-yielding securities.

BHP Billiton Ltd. CEO Marius Kloppers said today he expects the USD to continue to weaken. On the outlook for commodities, he said that BHP believes China has finished restocking but that Japan, Europe and the U.S. are now beginning to restock.

It will be a fairly busy economic reporting day. Look for July Import and Export Prices to be released at 8:30 am (Eastern Time) along with the July Retail sales report and the usual Thursday morning release of the Initial Jobless Claims. Then at 10 am, watch for the Business Inventories figures for the month of June.

In earnings news today, you can expect to see releases from Wal-Mart Stores Inc., Anheuser-Busch InBev, Prudential PLC, Dr Pepper Snapple Group, Inc., GNC Corporation, Kohls Corporation, Blockbuster Inc., Internet Gold, Nordstrom, The Estée Lauder Companies Inc., and Urban Outfitters.

Have a profitable day and Happy Trading,

James Dicks