US Dollar Resumes Slide

The US dollar declined against a basket of major currencies on Wednesday (Sept. 23rd) hitting a one year low. Currency traders dumped the greenback on speculation that the Fed will keep rates at record lows sending investors in search if higher yielding assets. Tohru Sasak of JP Morgan Chase Bank stated, “Dollar selling quickly spread to a wide-range of currencies as the dollar resumed its slide the previous day. The dollar is vulnerable at the moment as it is around key levels against many currencies, hovering in areas where lots of loss-cut selling orders await.”

Kiwi Continues Winning Streak

The New Zealand dollar resumed last week’s winning streak against the dollar and rose over one cent to $0.7315 the highest since August 2008. Better than expected New Zealand GDP data indicated the economy unexpectedly pulled out of recession territory during the second quarter. The dollar index, or DXY, fell 0.27% to 75.913 after hitting a low of 75.892. The DXY has declined over 2.5% this month as currency traders sold dollars in favor of higher yielding assets.

Aussie at 13 Month High

The Australian dollar rose to a new 13 month high in tandem with the Kiwi dollar. The Aussie was up 0.4% to $0.8769. Rising risk sentiment has pressured the greenback downward a trend many experts expect to continue. Jonathan Cavenagh of Westpac said, “It is a bit odd that the kiwi is leading the rally in the majors, but it just tells us about the sentiment and the risk reversal that has taken place. The broad theme is U.S. dollar weakness, and we must say it is looking ugly technically too.”

Dollar Falls vs. Yen

The dollar vs. yen fell 0.4 % to 90.72. Forex traders said that many stop loss orders were set for around 90.90 making the decline sharper. An unnamed forex trader at a Japanese bank stated, “Regarding the dollar/yen, we thought stops had been cleared out after the pair fell near 90 yen many times last week. But moves this morning showed there were some more out there. Also, speculators really want to push down the greenback, even against the yen.”

This week currency trading is expected to be driven by the FOMC meeting and the upcoming G 20 summit in Pittsburgh.

Dollar vs. Yen Gains 1%

The US dollar rose on Monday against the Japanese yen as investors pulled back from bets against the greenback in advance of the Federal Open Market Committee meeting and the G 20 summit scheduled later this week. The dollar vs. yen rate gained slightly more than 1% although gains were limited due to light Asian trading as Asian financial centers were closed for a holiday. The absence of economic data spurred investors to take profits from currencies which rallied against the US dollar last week.

Fed May Announce Exit Strategy From Quantitative Easing

Some Forex experts are speculating that the Fed may announce an exit strategy for quantitative easing. Chuck Butler of Everbank World Markets stated, “There are some thoughts in the markets that the (FOMC) might announce that they’re going to start removing stimulus. That’s why the dollar is a little bit stronger. I don’t think this is any trend reversal of what we’ve seen from March on. This could just really be a correction. Last week’s run-up (in other currencies) was huge.” Last week the Aussie and Kiwi dollars were big winners but gains have been pared in advance of the FOMC and G 20 meetings.

DXY Highest Since September 10th

Despite speculation the FOMC is expected to keep rates at their present level but Forex markets will be watching for signs of the Fed’s exit strategy. In New York the ICE futures, which tracks the greenback against a basket of major currencies, rose 0.4% to 76.746 DXY the highest since September 10th 2009. The US dollar benefited from lowered risk sentiment due to a decline in the FTSEurofirst 300 index which fell below 1,000. The FTSEurofirst 300 index tracks the performance of Europe’s largest 300 companies by market capitalization.

Caution in Advance of G 20 Meeting

Investors are also cautious in advance of the G 20 summit on Thursday and Friday in Pittsburgh. Boris Schlossberg of GFT Forex said that rhetoric in advance of the G 20 meeting promoted profit taking in risky assets and any future regulation of capital markets could spark a rise in risk aversion.

UK Unemployment Figures at Highest Level Since 1995

The pound fell to a four month low as UK unemployment figures rose to the highest level since 1995 paring recovery hopes in the UK. The pound to euro exchange rate fell to 89.01 pence per euro. The Office for National Statistics reported that the number of people in the UK seeking employment increased by 210,000 to 2.47 million. Vincent Chaigneau of Societe Generale SA stated, “The market had a shock yesterday and the data this morning was not strong enough to reverse the trend. The data confirmed what King said yesterday, which is that we can pretty much rule out a strong recovery. It was a wake-up call for the market.”

BOE May Cut Rates

The UK unemployment rate rose to 7.9% compared with 0.5% in the Euro Zone, 9.7% in the US and 5.7% in Japan. Bank of England Governor Mervyn King told MP’s that the BOE is “looking at” cutting deposit rates to stimulate lending by financial institutions. The BOE’s next policy meeting is October 8th and investors will be watching closely.

Euro Extends Gains

On Wednesday (Sept. 16th) the euro extended recent gains against the US dollar hitting a nine month high. The euro to dollar exchange rate rose to $1.4705 rising above $1.47 for the first time since September 2008. In contrast the DXY fell to its lowest in a year to 76.262. Rising risk sentiment has put pressure on the dollar as forex traders sell the dollar in favor of higher yielding currencies. Lauren Rosborough of Westpac stated, “The general dollar-selling trend remains in place. The $1.4720-1.4750 region should be capped in the short term, but once we get into New York trade the tendency will be to push the dollar lower.”

Aussie and Kiwi Dollars Gain

On Wednesday the dollar fell to a one year low against a basket of major currencies as rising stocks and deficit concerns pared demand for the greenback. The Aussie and Kiwi dollars have been the chief beneficiaries of the demand for higher yielding assets. Both Australia and New Zealand offer significantly higher three month deposit rates than the US and Japan.