special reports

Forex Market Update: US Dollar Rallies Overnight, Gold Dips Under $800

Tuesday, 09 September 2008 07:04:07 GMT  |  David Song, Currency Analyst

The dollar continued its rally that began overnight, with currencies such as the AUD and EUR reaching their lowest levels since last year. Carry trades, which rallied strongly yesterday, reversed course, coming under renewed selling pressure as Asian stocks lost ground.

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Economic Events 09/09/2008

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04:26 GMT - Option defense is seen stalling a break of EUR 1.40 with talk of a barrier option at that level. But traders in Asia remain bearish on the EUR as slowing euro zone growth weighs on the currency. Economists quoted in the Financial Times Deutschland also say that prices in the euro zone are likely to decline much faster than the ECB expects. Looking ahead to the euro zone calendar, German trade data is due with a current account of 15.0 bln expected for July. EUR-USD currently trades at 1.4088, after making a low of 1.4045.

05:11 GMT - Japan is submitting the second-largest budget on record for fiscal 2009, according to the Nikkei, with a budget of Y89.13T or $829.7B. The news will dash hopes for economic reform given the increased spending with the report noting that some of the increase is tied to an increase in cost for redemption of government bonds.

05:28 - GMT Concerns over U.S. banks and investment banks continue in Asia, after the fall in Lehman last night on warnings from Merrill Lynch and Oppenheimer of larger writedowns. Lehman remains a focus in Asia with the UK Telegraph noting a warning over the S. Korean lifeline for the investment bank. Also being watched is the news in late New York that Wells Fargo has stated it may have to write down its stake in Fannie and Freddie. Since that news development, Oppenheimer's Whitney has cut Wells Fargo to underperform according to Reuters. In addition, Ladenburg Thalmann has widened its view on Lehman's losses, has cut Goldman Sachs share view, and cut the share view for Morgan Stanley with these developments at risk of weighing on financials in New York trading later today. Pressure on financials and the stocks would add to pressure on carry trades.

06:30 GMT - U.K. Monster U.K. Employment index fell for a third consecutive month in August to 167 from 174 in July and on the same level as a year ago. This was the first time the index showed no annual growth, highlighting that the U.K. labour market is now really set for a downturn. Monster reported the steepest decline in demand for labour was within hospitality and tourism, education training and library sectors, while there were moderate rises for public sector jobs. Most regions recorded declines in online job opportunities, with demand for London placements falling for a sixth consecutive month. Overall, data is in line with official ONS data and recent survey results, suggesting a gradual deterioration of the U.K. labour market, which should help to keep a lid on wage demand.

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Forex Market Highlights

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The dollar continued its rally that began overnight, with currencies such as the AUD and EUR reaching their lowest levels since last year. Carry trades, which rallied strongly yesterday, reversed course, coming under renewed selling pressure as Asian stocks lost ground. Asian currencies were also easier on the back of a stronger USD. Some pressure on commodity prices also helped underpin the dollar and weigh on commodity currencies such as AUD and CAD. Gold dipped under $800, while oil fell over a $1 a barrel on comments from an OPEC official that oil prices were near levels that reflected fundamentals, and that cutting oil output now would be unjustified.

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