Yesterday, the US dollar slipped as a sharp drop in US stocks added concerns about a possible economic recession and raised prospects of a deeper rate cut by the Feds this month. Clearly, we can say there is a fair degree of sensitivity between currency markets and what's happening in stocks; however it's hard to distinguish any significant trends in the forex market right now.
Moving on to today, the US dollar was mixed against other major currencies midway through the morning secession. It's obvious now what's happening here, well at least in my prospect the currency market is trying to figure out which is the way to lean here in terms of how the US economy is going to pan out
Meanwhile, Traders are looking ahead to the European and UK central bank meetings and Fed chairman Ben Bernanke's speech tomorrow which may give clues about the direction of interest rates in their respective areas.
The ECB and BOE are expected to leave rates unchanged, though Mr. Trichet, president if the ECB is likely to suggest higher rates in the future to curb inflation. The Euro is now dropping against the US dollar pushing the pair to the downside to record a low of 1.4702 after recording a high of 1.4743.
The Bank of England is however under pressure to cut rates again particularly, after UK retailers reported their worse Christmas trading period since 2004. In early European deals today, the British Pound declined to fresh record low against the Euro and a new multi-month low against the dollar. The currency also weakened against other majors too. Against the US dollar, the Royal Pound declined pushing the pair to record a low of 1.9619 after recording a high of 1.9763.
No major releases were out today from the Japanese economy yet a report attributed yen's weakness to the market speculation that the bank of Japan is likely to keep rates on hold. The Japanese Yen showed weakness against its major counterparts during early deals today. Yet, the currency staged an attempt to bounce back in early European trading, but it lost ground again pushing the USD/JPY pair to the upside to record a high of 109.71 and a low of 108.83
In the end, all we could hope for is for the everlasting financial market turmoil to come to an end. Because currently, signs of slowing growth in the industrial world are already apparent and the consequent tightening of credit conditions had increased the downside risks to activity and inflation in the medium term.
