Major Currency Pairs Analysis: September 24, 2012

The euro fell for the first time in six weeks versus the dollar as reports showed the region’s economy struggling amid the debt crisis. The 17-nation euro declined versus most of its major counterparts before Spain’s government addresses budget issues this week.

Even though the moves by the European Central Bank can take away tail risk, we still have a really dismal economic situation, where at best, its stagnant, and at worst, deepening recession. The euro dropped 1.1 percent to $1.2980 in New York, its largest decline since July 6. The shared currency weakened 1.4 percent to 101.46 yen, its first weekly loss since Aug. 10. The yen strengthened 0.3 percent to 78.17 per dollar.
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GBP/USD
The pound retreated from a 13-month high against the U.S. dollar on Friday, to end the week almost unchanged against the greenback, as uncertainty over the global outlook and the prospects for a Spanish bailout dented risk appetite. The cable hit 1.6308 on Friday, the pair’s highest since August 31, 2011; the pair subsequently consolidated at 1.6226 by close of trade, dipping 0.04% on the week.

The pound touched a 13-month high against the greenback on Friday as demand for higher yielding assets was supported by speculation that Spain was moving closer to requesting a full-scale sovereign bailout. In the U.K., official data on Friday showed that the U.K. budget deficit rose to the largest on record for any August last month. The data came after Bank of England minutes on Wednesday showed some policymakers felt the economy may need more stimulus, indicating that the central bank may extend its GBP375 billion asset buying scheme. In the week ahead, investors will continue to eye developments in Spain, while U.S. data on consumer sentiment and spending will be closely watched as investors attempt to gauge the strength of the U.S. economy.
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USD/JPY
The U.S. dollar ended the week slightly lower against the yen on Friday, as the effects of the Bank of Japan’s monetary easing waned amid concerns over the outlook for global growth. The pair is likely to find support at 77.69, the low of September 11 and resistance at 78.86, Tuesday’s high. The dollar jumped to a one-month high against the yen on previously after the BoJ eased monetary policy on Wednesday and downgraded its assessment of the global economy, citing a slowdown in global demand.


The central bank kept its benchmark interest rate unchanged at 0.1% in a widely anticipated decision. The move came one week after the Federal Reserve announced that it will buy USD40 billion of mortgage-backed securities each month until the labor market improves and pledged to keep interest rates close to record lows until at least the middle of 2015. But the yen firmed up after data from China on Thursday showed that the country’s manufacturing sector remained in contraction territory for the eleventh consecutive month in September.
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USD/CAD
Canada’s dollar declined for the first time in four weeks against its U.S. counterpart as oil tumbled and concern increased that the global economy may be slowing, damping investor appetite for higher-yielding assets. The currency fell against the majority of its 16 most-traded peers as Canada’s inflation rate unexpectedly slowed for a second month, dimming the outlook for higher interest rates. Canada’s dollar declined on Sept. 20 the most in eight weeks after economic reports from the U.S., Europe and China indicated growth may be slowing.

Canada’s gross domestic product is forecast to grow at 0.1 percent pace in July, down from 0.2 percent in June. Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the CAD 1 coin, fell 0.5 percent this week to 97.64 cents per U.S. dollar in Toronto. The loonie declined with crude-oil futures , which dropped 6 percent to $93.04 per barrel in New York, the biggest slump since the five days ended May 4.Canadian government bonds rose, with the yield on the 10-year benchmark note falling 12 basis points, or 0.12 percentage point, to 1.85 percent.
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