Aug 30 2007
USD Bearishness Continues.
Yesterday the greenback continued on its bearish decent as it lost ground against most of the majors. Earlier in the week investors were expecting the FOMC minutes to give some indication as to when the Fed will cut rates, however the FOMC minutes did not reveal much and this created uncertainty in the market of whether the Fed is actually planning to cut rates. There was no significant economic news released from the US yesterday, so the bearish momentum that was created by the discrete FOMC minutes continued throughout yesterdays trading. The main market movement today can be attributed to the US equity markets rebound after Teusday’s large sell off. This caused the USD to weaken sharply against the high yielder’s as carry trades were back in action but on the other hand the carry trade winding caused the USD to gain some lost ground against the JPY, so it was not all doom and gloom for the greenback. The US markets sudden rebound yesterday can be attributed to the leaking of a letter by Fed Chairman Bernanke where he explicitly stated that the Fed is keeping a watchful eye on the financial markets and that it will intervene in order to mitigate the negative impact that the problems in the financial markets may have on the economy.
In US news today we are expecting the GDP annualized and deflator annualized figures which are forecasted to release at 4.0 % and 3.7 %, respectively. The previous quarters GDP annualized figure was 3.4 %, so we are expecting a 0.6 % increase in growth which would reaffirm the Fed’s view that the economy is expanding at a moderate pace. However these figures are not expected to cause any major movements and the source of today’s volatility will be the equity markets. The rebound in the US markets may spillover into Europe and Asia today, so if this occurs the carry trade resurrection will cause the greenback to depreciate against the high yielders but gain against the JPY. If the GDP figures do not surprise the market the greenback is likely to continue on its bearish path against the EUR and GBP, as there is no other data to give the USD some reprieve.
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