Foreign Exchange Market Daily Update

Daily Forex Fundamentals | Written by Union Bank of California | Sep 05 08 14:57 GMT |

The US dollar was mixed against a basket of currencies in choppy trading. The US unemployment data showed 84,000 jobs were lost in August which was unexpectedly higher than the forecasted 75,000, and revisions added another 58,000 to job losses for the prior two months. This 6.1 % increase in unemployment rate was the highest in nearly 4 ½ years. Employment is one of the many indicators utilized by the National Bureau of Economic Research to gauge recession. With bleak hiring data, analysts are forecasting the Federal Reserve to keep interest rates on hold until 2009 to keep in line with the weakening economy.

Overnight, the euro weakened against the dollar as investors fled risky investments with financial sector as their underlying concern. However, any losses were erased after the US unemployment data was released. In a data released by the Eurozone Future Inflation Gauge which aims to predict cyclical turns in inflation within the next six to nine months, the high euro zone inflation may be tapering off. In July the inflationary figures declined to 107.2, down from 108.9 in June, suggesting the euro zone inflation may be easing.

The Sterling weakened against the dollar and a basket of other currencies. The sterling continues to tumble as house prices declined for the fifth straight month in August and reports showed an ongoing economic slowdown, adding fuel to the view that the UK is falling into recession.

The Japanese yen strengthened against the dollar as investors became risk-averse and unwound their carry trades spooked by a 3 % slump in major US stock indices yesterday. The yen rallied against most major currencies as fears over global recession heightened, due to credit-market losses.

The Canadian dollar strengthened against the US dollar as stronger than expected Canadian employment data was released. After cutting 55,200 jobs in July, the employment data showed that the Canadian economy added 15,200 jobs in August, which was nearly double what was expected. However, any gains in the loonie were being capped as oil prices declined to $107 a barrel, a key exporting commodity for Canada.

The Australian and New Zealand dollar weakened against the US dollar and the yen as prices of commodity declined. With yesterdays slump in US stock prices and higher than expected US unemployment figures today, the Aussie and the Kiwi suffered as market participants unwound their riskier trades, indicating a negative carry trade sentiment.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group
http://www.uboc.com

Disclaimer: This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. It is based of the most accurate information currently available, but should not considered investment advise or a guarantee of future exchange rate or trends.