The U.S. Dollar continued its slide against all the major currencies last week, extending the previous week’s losses. The U.S. Dollar Index lost -2.00 points last week to close under the psychological 80.00 level at 79.40, showing an overall loss of 2.46 percent on the week.
By far, the most significant price action seen last week was against the Euro, which gained 3.4 percent overall against the Greenback.
The Euro was followed by the Australian Dollar gaining 2.4 percent, the Japanese Yen rising 1.8 percent, the Pound Sterling appreciating 1.3 percent, and the New Zealand Dollar was up by 1.2 percent.
The Canadian Dollar ended up turning in the second worst performance of the majors, and it rose by only 0.6 percent versus the beleaguered Greenback.
U.S. Dollar Delivers Dismal Performance After FOMC Minutes
The U.S. Dollar’s dismal performance last week was largely due to the FOMC’s dovish accompanying statement to the rate announcement where the Federal Reserve held its benchmark Fed Funds Rate at the historically low figure of 0.25%.
While the rate decision was already factored into the market, traders considered the FOMC statement especially dovish, focusing in on its comment that,
“The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate”.
The FOMC also indicated that the Fed might soon commence yet another bout of quantitative easing “” already nicknamed QE II by the market “” to help stimulated the stubbornly sluggish U.S. economy.
The Euro Gains Big after FOMC Statement
The Euro gained 3.4 percent against the Greenback last week, rallying sharply in the wake of the FOMC’s statement. Nevertheless, the Fed’s rate decision and accompanying statement were not the only factors driving the Euro rally.
Another European debt auction held last week also contributed to the Euro’s run up against the Greenback. This time the auction was for Portuguese 4 and 10 year bonds, with the auctions being oversubscribed by factors of 3.5 and 4.9 respectively. Nevertheless, yields rose again as the Portuguese 4 year debt sale raised 450 M Euros with an average yield on the bonds of 4.7% that was up from the 3.6% seen in July, while the 10 year auction raised 300 M Euros with yields averaging 6.2% “” up from the 5.3% yield seen in August.
Australian Dollar Hits Highest Level Since June of 2008
The Aussie was the second best performer against the Greenback last week, rising 2.4 percent and trading at levels not seen since June of 2008.
AUDUSD began rallying on Monday after comments made by RBA Governor Stevens indicated an increased likelihood of an RBA rate hike of 25 bps to 4.75% in the central bank’s upcoming monetary policy meeting to be held October 4th.
Financial markets now seem to be factoring in a 30% likelihood of an October RBA rate hike, with a 70% chance of an increase in its benchmark rate by November.
The Australian Dollar also benefitted from the price of gold making a new all time high of $1,299.72 per ounce on Friday.
Bank of Japan Refuses to Comment on Possible Intervention
The third best performance seen against the U.S. Dollar last week was the Japanese Yen, which rose 1.8 percent against the Greenback.
The BOJ confirmed it had intervened in the forex market during the previous week to the tune of 2 Trillion Yen or roughly $23 billion. The intervention took place throughout the single trading day and resulted in the U.S. Dollar gaining roughly 3 percent against the Japanese Yen.
Nevertheless, BOJ officials declined to comment to confirm rumors spread by a Japanese news wire as to whether the central bank had intervened for a second time on Friday when USDJPY surged from the 84.51 level to 85.38 in the space of only one hour.
The sharp spike took place during the Asian session mid-day Tokyo time.
Nevertheless, the rumor driven rally was short lived, with the rate retreating back down almost as fast as it had initially gone up after no official confirmation was received.
Forex Market Implications
The forex market has finally begun reacting to the persistent weakness in U.S. economic numbers and the long term implications for the U.S. Dollar are clear. The U.S. Federal Reserve has also reconfirmed the economy’s weakness by announcing that it will contemplate a further round of stimulus programs that include buying back agency debt.
It seems that the U.S. Dollar has just begun to fall on the news, with last week’s dismal performance perhaps being just the beginning of the Greenback’s long awaited decline against the other major currencies.
Overall, the commodity dollars continue to be favored against the U.S. Dollar and the Euro, even more so with the price of gold making fresh all time highs “” as it did once again last Friday by trading up to the $1,299.72 level.
Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 9/27/2010 The U.S. Dollar weakened across the board against all the major currencies last week in the wake of dovish comments from the Federal Reserve’s FOMC made on Tuesday. The Fed opted once more to leave rates unchanged at 0.25 percent, as expected, but it was the accompanying dovish Rate Statement from the FOMC that sparked the sell off in the Greenback. Read full report
Weekly Recap and Outlook for EURUSD – 9/27/2010 EURUSD gained sharply last week after the U.S. Dollar was hit by dovish FOMC comments accompanying the Tuesday announcement by the Federal Reserve that it was leaving its benchmark Fed Funds Rate unchanged. The pair started off the week on Monday by opening a bit higher at 1.3060, but the pair then fell to make its weekly low print at the 1.3028 level despite no significant economic releases in either the Eurozone or the United States. EURUSD closed on Monday at its opening level, but on Tuesday the rate started moving sharply higher, with the rally spurred initially by favorable debt auctions held by Spain and Ireland. Read full report
Weekly Recap and Outlook for GBPUSD – 9/27/2010 GBPUSD gained substantial ground during last week’s trading after starting the week off on a soft note in spite of the release of the U.K. Rightmove HPI which had only fallen by -1.1% for the month that compared favorably with its former reading of a higher -1.7% drop. In addition, U.K. Preliminary Mortgage Approvals were released at 45K that was pretty much in line with the market’s expectations. Also out last Monday was the BOE’s Quarterly Bulletin which indicated that, “Sterling appears to have appreciated by more than would be suggested by interest-rate differentials because of reduced uncertainty about the UK fiscal outlook.” Read full report
Weekly Recap and Outlook for AUDUSD – 9/27/2010 AUDUSD traded considerably higher last week as risk appetite grew among international investors and gold’s price hit a fresh all time high just below the psychological $1,300 level. Last week started with the rate trading higher off of its weekly low point of 0.9361 seen on Monday in the wake of comments from RBA Governor Glenn Stevens that indicated a greater likelihood for another RBA rate hike of 25 bps to 4.75% at the central bank’s coming monetary policy meeting that will be held on October 4th. Financial markets currently seem to be pricing in a 30% chance of an October RBA benchmark rate rise and a 70% chance of a rate rise by its November meeting. Read full report
Weekly Recap and Outlook for NZDUSD – 9/27/2010 NZDUSD gained additional ground in last week’s trading as the price of gold went to a fresh high and risk appetite grew among international investors. The pair started the week out on a firm note, with the Kiwi rising from its weekly low point of 0.7249 despite disappointing news that New Zealand Visitor Arrivals had showed a gain of only +0.6% for the month compared with its previous higher gain of +0.8% that was also revised significantly down from the +1.4% level. Also seen out on Monday was New Zealand Credit Card Spending that was up by +2.0% year on year, but this was below its former gain of +2.6%. Despite this somewhat disappointing data coming out of New Zealand, NZDUSD continued rising on Tuesday as the Kiwi traded generally in sympathy with the Aussie. Tuesday also saw the release of the New Zealand Current Account that came out showing a deficit of -0.88B which was wider than the expected -0.19B deficit the market was looking for. Read full report
Weekly Recap and Outlook for USDJPY – 9/27/2010 Last week’s trading saw USDJPY give back a portion of its gains made the previous week in the wake of the Bank of Japan’s most recent round of official intervention. The rate started the notably peaceful week out by opening on a firm note and trading to its weekly high point of 85.79 on Monday as Japanese markets closed down to observe the country’s “Respect for the Aged” Bank Holiday. Nevertheless, the rate soon began trading softer and Tuesday’s session saw the rate slide even further as the Greenback softened after the Federal Reserve Bank announced that it would be maintaining its benchmark Fed Funds rate steady at the 0.25% level. While the rate decision was as expected, the forex market reacted strongly to the dovish comments contained in the accompanying FOMC statement which increased the market’s expectations for future quantitative easing from the Fed in its attempts to help stimulate the sluggish U.S. economy, that are now being nicknamed QE II by the market. The market focused in on the FOMC’s comment that the Fed was, “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate”. This fresh hint at the possibility of further Fed easing put additional downside pressure on the already soft USDJPY rate. In terms of U.S. economic data released last Tuesday, Building Permits were out in line with market expectations at 0.57 Million, while Housing Starts bettered the 0.55 Million consensus by coming out at 0.60 Million. Read full report
Weekly Recap and Outlook for USDCAD – 9/27/2010 USDCAD lost a bit of ground last week, with the Canadian Dollar failing to gain much from the market’s overall move out of the Greenback and the latest rise in gold prices to new highs. The Loonie suffered primarily due to weaker economic data releases seen out of Canada. Read full report
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