Greenback Under Pressure

Currencies Direct January 20th 2011 - 2 minute read

The Greenback fell to a two month low against the euro
yesterday as speculation that the US economic recovery will remain
sluggish and mounting speculation that European officials are successfully
addressing the region’s debt crisis. The dollar weakened against 13 of its 16
most-traded counterparts as housing starts declined to the lowest level since
October 2009 and before data later today that may show continuing jobless
claims increased. The Chinese Yuan also reached a 17-year high against the
Dollar as Chinese President Hu Jintao met with President Barack Obama at the
White House. Meeting yesterday for the eighth time, both leaders emphasised the
importance of increased trade and said their two countries can keep building commercial
ties while working through differences on currency policy and human rights.

FX markets took a bit of a back seat during the day whilst
attention turned to interest rates in general and monetary policies in
particular. With global central banks starting to look at normalising policies
and thus interest rates, traders have edged yields higher almost across the
board. The next step looks likely to be the re-introduction from investors of
carry trades and in order to achieve this, a funding currency must be sought.
The obvious choices are the popular Yen and Swiss Franc but there are arguments
for using the Dollar or Sterling
as well. Could be interesting once rates start moving higher. As an aside, both
Poland and Brazil continued their tightening cycle yesterday
and with Chinese economic data this morning coming in stronger than expected, I
would anticipate a further tightening from Beijing some time soon.

Today, the calendar is better filled compared to previous
days. In Europe, investors will look out for
the European Commission’s first estimate of January consumer confidence. In the
US, the jobless claims, the existing home sales, the leading indictors and the
Philadelphia Fed manufacturing index are on the agenda, while in the UK, the
CBI industrial trends survey will be published. The EuropeanSystemic Risk
Board, headed by ECB President Trichet and BoE Governor King will hold its
first meeting. The visit of the Chinese president to the US also
continues.

Report by Philip Ryan

Written by
Currencies Direct

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