Foreign Exchange Market Daily Update

Daily Forex Fundamentals | Written by Union Bank of California | Sep 18 08 15:02 GMT |

The US dollar weakened against a basket of currencies as jobless claims unexpectedly rose and the spotlight continues to shine on the US financial market. In a data released by the Labor Department, US workers filing new claims for jobless benefits unexpectedly rose by 10,000 last week to a seasonally adjusted 455,000 which was higher than the forecasted 440,000. However, the number of continued claims – people remaining on benefit rolls after drawing an initial week of aid – unexpectedly fell by 55,000 to 3.48 million last week. On Monday, as Wall Street upheavals began, the bank-to-bank lending froze as overnight lending rates sky rocketed to 10 % to borrow the dollar. In an effort to free up bank-to-bank lending, the US Federal Reserve, and other top central banks joined forces to pump billions of dollars into the global money markets to ease some of the pressure. The Fed injected an extra $180 billion, which was then made available to major banks to lend on to their local commercial banks. Although the extra funds helped calm the markets, analysts predict this relief will only be temporary. The euro strengthened against the dollar as oil prices climbed and US jobless claims unexpectedly rose. In the past year, the euro-dollar exchange rate trended with oil, and had a correlation of 0.8 %. As the Fed steps in to throw a lifeline to the global markets, the European Central Bank offered $40 billion for one day today, and indicated that the amount could increase as needed. The Pound Sterling strengthened against the dollar after stronger than expected retail sales. The Office for National Statistics reported that retail sales volumes unexpectedly rose 1.2 % on the month, as analysts forecasted a 0.5 % decline on the month. The Japanese yen strengthened against the dollar overnight, but erased any gains as investors slowly, but surely, began to partake in carry trades. As central banks around the world intervened to free up the global markets, investors saw this as a chance to be a little less cautious and purchase riskier assets. The Canadian dollar strengthened against the US dollar as oil and gold prices climbed and wholesale trade soared past expectations. After the world's biggest central banks agreed to act jointly, increased confidence in the global economic growth pushed the price of commodities which include oil and gold up. Furthermore, the July Canadian wholesale trade grew 2.3 % from June, which soared past the forecasted 0.5 % gain. The Australian and New Zealand dollar strengthened against the greenback and yen on higher commodity prices. The Aussie and the Kiwi benefit from the demand in natural resources, as oil rose above $100 a barrel and gold climbed to a six-week high. 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.