Foreign Exchange Market Daily Update

Daily Forex Fundamentals | Written by Union Bank of California | Sep 11 08 15:02 GMT |

The US dollar is mixed against a basket of currencies after yesterday's trade deficit reporting and today's jobless claims report. The dollar weakened against the yen and the euro when US trade deficit widened much more than expected to a swelling $62.2 billion from the forecasted $58.0 billion in July, as a result of oil prices. However, some losses against the euro were trimmed after US jobless claims declined last week. The Labor Department reported that US workers filing claims for jobless benefits declined by 6,000 last week. The biggest dollar rally booster this morning is due from world equities falling by 1 %, as investors depressed their appetite for risk over global growth and financial concerns. The euro initially gained against the dollar after wider than expected US trade deficit, but erased any gains after world equities dropped by 1% to their lowest level in more than two years. Many investors speculate that the economic growth in Europe will be slower than the US, which would push the European Central Bank to lower their interest rates. The Pound Sterling weakened to a 2 ½ year low against the dollar. The fall in pound came after Bank of England policymaker David Blanchflower, the arch dove in the BoE's Monetary Policy Committee, signaled a deeper than anticipated decline in the UK economy and unemployment rates to rise in the near future. Blanchflower's comment to British Parliament's Treasury Committee that he expected several months of 60,000-plus rises in unemployment pushed traders and analysts to sell the already floundering pound. The Japanese yen strengthened against the dollar as the US trade deficit gap unexpectedly widened. As concerns over the health of the global economy continue to spook investors to unwind carry trade, the yen continues to rally against the dollar and the euro. The Canadian dollar initially weakened against the US dollar after reports for the nation's trade surplus was released, but soon erased any loss against the greenback as the US trade deficit was released. The Canadian trade surplus shrank in July to $4.9 billion Canadian dollars, down from the forecasted surplus of $5.6 billion Canadian dollars, as crude oil prices declined for the first time since March. The Australian and New Zealand dollar weakened against the US dollar as the Reserve Bank of New Zealand unexpectedly cut interest rates by 50 basis points. Many had expected a 25 basis point interest rate cut, but in a surprise move the RBNZ cut rates by 50 points, bringing the benchmark interest rate to 7.5 signaling further rate cuts to come. With the Kiwi's surprise move, the Aussie was dragged down. The Mexican peso weakened against the dollar amid concerns over the US credit crisis and its effects on emerging market nations like Mexico. The peso has been taking direction from recent trends in dollar. 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 &amp 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.