US Dollar, Japanese Yen Mostly Stronger as US Equities Drift Lower

Published October 8th, 2009 - 01:12 GMT

•    Euro Down as Q2 GDP Gets Revised Lower - European Central Bank Decision on Thursday
•    British Pound Up Ahead of Bank of England Announcement - Neutral Stance Likely
•    Australian Dollar Loses Some Steam Ahead of Employment Report

US Dollar, Japanese Yen Mostly Stronger as US Equities Drift Lower
The US dollar and Japanese yen gained against many of the other majors on Wednesday as carry trades eased back and US equities drifted marginally lower. There were no headline economic indicators released, but there was a report circulating that reflected the feeble status of the real estate sector. Reis Inc. said that office vacancies rose to a five- year high of 16.5 percent from 13.7 percent, while effective rents, the amount paid by tenants, fell by 8.5 percent from a year ago, the biggest drop since 1995. Given the amount of job losses throughout the US, but more specifically, the financial sector, it’s not entirely surprising to see that businesses are cutting back on the amount of office space they need. Nevertheless, the rise in vacancies and drop in rents just serves as additional evidence that property values remain under serious pressure, regardless if the property is residential or for business.

Thursday will be another quiet day for US event risk, but with two rate decisions due out from the European Central Bank and Bank of England, there will be plenty of other news to drive price action across the majors.

Related Article: Currency Market to Encounter Flurry of Rate Decisions from RBA, BOE, and ECB

Euro Down as Q2 GDP Gets Revised Lower - European Central Bank Decision on Thursday

According to the final release of Q2 GDP for the Euro-zone, the economy contracted more than previously anticipated at a rate of -0.2 percent from the previous quarter and at a rate of -2.5 percent from the previous year. The revisions were due to a combination of weaker than expected housing spending (+0.1 percent from +0.2 percent), investment (-1.5 percent from -1.3 percent), and exports (-1.5 percent from -1.1 percent). The euro was ultimately one of the weakest currencies of the day, rising only against the Swiss franc and Canadian dollar, but the news didn’t have much of an impact on the euro upon release, as this is a very lagging indicator and more recent data, such as the composite purchasing managers’ index (PMI) for the region, has shown that the economy showed some signs of growth during Q3.

Nevertheless, the European Central Bank is anticipated to leave rates unchanged at 1.00 percent at 7:45 ET on Thursday. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Traders will likely focus on any comments regarding the future of interest rates in the region, including whether the next move will be an increase, as well as statements on exit strategies for the central bank’s liquidity programs.

Related Article: Euro Weekly Trading Forecast

British Pound Up Ahead of Bank of England Announcement - Neutral Stance Likely

The British pound made headway against many of the majors on Wednesday, as GBPJPY tested and then reversed from 140 once again. There was no UK data on hand, but the British pound will face event risk on Thursday from the Bank of England’s (BOE) latest rate decision. The BOE is anticipated to announce at 7:00 ET that they’ve left their Bank Rate unchanged at 0.50 percent, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement. This has consistently been the prime “news event” of recent rate decisions. Last month, the BOE indicated a neutral stance as they stated they would continue their £175 billion quantitative easing program, and this ultimately led the British pound to rally against the US dollar and euro immediately. A repeat of this statement is likely to trigger a similar reaction from the British pound, but on the other hand, any indication that the program may need to be expanded down the line would weigh very heavily on the currency.

Related Article: British Pound Weekly Trading Forecast

Australian Dollar Loses Some Steam Ahead of Employment Report

The Australian dollar suffered at the hand of risk aversion, though the currency’s declines were very mild. In light of the Reserve Bank of Australia’s unexpected rate hike earlier this week, there’s significant optimism building on the health of the Australian economy. However, upcoming employment data may either confirm or negate that sentiment, as this is one of the timeliest reports for the nation. The Australian employment change, which is scheduled to be released at 20:30 ET tonight, is projected to have fallen by 10,000 in September, which would mark the second straight contraction. Likewise, the unemployment rate is anticipated to hit a 6.0 percent, the highest since July 2003, from 5.8 percent. This particular release is similar to that of the US non-farm payrolls results, as the numbers are notoriously difficult to predict and thus, tend to spark a lot of volatility in the markets. Thus, traders should look out for a surprising positive result to offer a solid boost to the Australian dollar, while a disappointingly steep decline should weigh on the currency.

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Written by: Terri Belkas, Currency Strategist for


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