Forex Daily

The Swiss franc was bolstered today as the Swiss National Bank kept interest rates at a record low. This rose the Swiss franc to a one month high against the euro, whilst sterling fell sharply after weak UK sales figures were released.

The euro’s fall helped prod the dollar up as the dollar index rose by 0.2 percent; this helped to recover some losses sustained by the greenback earlier this week after a glut of weak US economic data, including US inflation data was released.

Sterling was the session’s biggest loser, falling by 1 percent against the dollar as UK retail sales unexpectedly fell in May and public sector borrowing hit a new high.

The dollar lowered on Wednesday as investors moved from the greenback to higher-yielding assets after analysts predict that the global economy is improving. The US dollar also lost ground over speculation that the Federal Reserve will increase interest rates by the end of the year.

The dollar index, which calculates the dollar’s performance against six major currencies, fell by 0.4% to 79.457, as the euro racked up a 0.5% increase to $1.4141 and sterling surged 0.7% against the dollar to $1.6431.

The Australian dollar also saw a rise of 1.3% against the greenback after new Australian consumer confidence data showed a surge, reducing the likelihood of further interest rate cuts.

The US dollar hovered nervously low on Wednesday as US house sales posted a third monthly rise in a row. The US house sales figures took their highest jump in over 7 years, suggesting that the housing market is stabilising and reinforced some investor’s views of a global economic recovery.

The dollar hasn’t recovered since Monday, when General Motors filed for bankruptcy protection, marking the biggest failure of a US manufacturing company in history; this in turn lowered the dollar index to 78.334, its weakest position since December 2008.

The yen rose 0.3% against the dollar to 95.46, with the Australian dollar closing 0.3% down after hitting an eight month high against the greenback. Figures also show that Sterling ended the session 0.2% down against the dollar at $1.6562 after hitting a seven month high of $1.6595 on Tuesday.

The yen fell against a host of currencies yesterday, as investors moved towards riskier assets and consumer confidence rose to its highest rate for eight months to 54.9. The dollar rose 0.4% against the yen with sterling following suit, rising to a four month high of 152.53 yen; both the euro and Australian dollar also pulled back ground against the yen.

Data released earlier this week showed that Japan’s trade balance surplus was 69 billion yen, compared to the expectation of a 57.5 billion yen shortfall. Chief economist for the Norinchukin Research Institute, Takeshi Minami said: “It’s another sign that the worst for Japanese exports is over,”

But cautiously added, “But the global economy is still hurt, so a sharp rebound is unlikely. For Japanese companies, severe conditions will continue.”

The euro fell this morning against a hat full of currencies as traders await the latest European Central Bank (ECB) interest rate policy decision, to be released later today. Analysts are predicting that the ECB will cut rates by 25 basis points to a record low of 1 percent and announce new strategies for bolstering the euro zone economy.

The euro ended the session 0.2% down against the sterling at 87.88p, after hitting a 3 month low of 87.65p before gaining slightly at the end. The euro was also 0.4% down against the dollar at $1.326 after hitting a 4 week high against the greenback on Tuesday.

Meanwhile, the Australian dollar rose to a 7 month high, as new data showed that Australian employment rose in April, casting doubt on the need for further rate cuts in the region.

The Yen fell yesterday after market confidence increased in the U.S. economy. Many investors sold their shares on the Japanese stock exchange in favour of investing in the US as the US economy has been showing positive signs of growth over the last few days, largely due to increased consumer spending.

Many who feared the economic effects of swine flu and had invested in the Yen as a safe haven have also now started re-investing in the Euro and the Dollar after the swine flu virus has appeared to be less deadly than it was first suspected.

It is suspected that the Yen will improve next week after the US discloses the results of their stress tests regarding banks’ capital and economic decline.

The euro fell today, to a 3 week low against the sterling and dollar, as investors expect that euro zone inflation figures will come below the 2% target set out by the European Central Bank. Data to be released later today is likely to show that the euro zone inflation rate falling to around 1.8% in December, down from 2.1% in November.

If the latest inflation figures come in below 2% as widely expected, it is likely that the ECB will have to cut interest rate again. The euro still holds an advantage over the likes of the dollar and yen, with euro zone interest rates at 2.5% compared to the almost zero of both Japan and the US.

The euro fell 1.3% against the dollar to $1.342 and 1.2% against the sterling at 91.4p, after its record high of 98.05p achieved last week. The dollar also hit a month high against the yen, finishing at 93.84 yen.

On Tuesday, the Federal Reserve made an unprecedented move and cut interest rates from 1% to between zero and 0.25% as it tries to fight the country’s recession. In a statement, the Federal Reserve said that “the outlook for economic activity has weakened further”. It also predicted that the rates would stay at low levels for the foreseeable future.

Most analysts are calling the new interest rate virtually zero, with the Bank of America’s European economist Holger Schmieding saying, “Whether it’s zero or 0.25% actually does not make a huge difference”.

Mr Schmieding went on to say that it was now up to policy makers to help the economy as interest rates cannot be cut anymore.

Since September 2007, the Federal Reserve has slashed interest rates from 5.25% to its current level, and now also has the risk of deflation, which becomes more of a threat as the rate approaches zero.

The dollar fell to an 8-week low against the euro and numerous other currencies today, as investors stayed clear of the greenback because of uncertainly of the struggling US car manufacturers and its economic impact.

Late last week, the White House said it was considering a $700 billion bailout to prevent the collapse of the US car manufacturers; this was after the US Senate had rejected the plans on Thursday.

In the early session, the dollar was 0.7% down against the euro at $1.3470, as investors are wary that the collapse of any one of the US car manufacturers could drag other companies under with it.

The dollar was also under pressure because of the Federal Reserve’s policy meeting later this afternoon, where it is widely anticipated that the Federal Reserve will cut interest rates by another 0.5%.

The euro and pound were down against the US dollar and yen on Tuesday, as investors are still unsure of which way the markets are turning. Disappointing UK economic data put the pound under pressure in early trading, as analysts another Bank of England interest rate cut.

Risk demand was low as other economic figures showed the Japans economy shrank 0.5% in Q3 of 2008, far more than the anticipated 0.1% fall. Japanese entertainment firm Sony, also announced it would be cutting 5% of its jobs as part of their restructuring process.

The euro fell 0.7% against the dollar, as the pound fell 1% to $1.4764 on Tuesday, with the euro reaching record highs against the struggling UK currency.

The yen was also up 1% against the euro and 1.1% higher verses the sterling, as investors unwind carry trades; when the yen is used to fund high-yielding currencies.