The US$ is mixed this morning as trade remains thin ahead of the New Years holiday. Economic fundamentals continue to have little affect on the direction of trade. This morning, weekly jobless claims were released early and better than expected at 492K, versus an expected drop of 575K. However, continuing claims rose 100K versus expectations, jumping to a 26-year high, showing continued weakness in the labor market. Today, expect the dollar to remain relatively well supported against most major currencies as traders square up positions in a likely shortened day of trade.
The EUR is weaker against the dollar this morning, capping its worst yearly performance against the dollar in three years. The euro pared its losses from late summer and early fall in the final month of 2008 as the interest rate gap between the Euro Zone and the U.S. widened in the European’s favor. However, as focus again shifts to comparative economic health, expect the EUR’s recent advance to remain limited with its long-term trend being negative.
The JPY is relatively flat this morning against most major currencies. The yen was the “breakout” performer of 2008, with gains in the double digits against all major currencies. However, severe economic weakness in Japan keeps the yen in check as GDP is forecasted to fall by as much as 12% in the 4th quarter ’08. In the short term, expect the yen to oscillate in its recent ranges ahead of the new year.
The GBP pared some of its weekly losses against the dollar and the euro on no major economic news, but more traders buying the pound due to its historically low price. However, the BOE is still widely expected to continue lowering rates to close to 0% in the near term, and no significant recovery in the U.K. economy, and thus the pound, is expected until that time. With global interest rates converging near zero, focus will shift to comparative economic strength and stimulative actions other than monetary policy, and this may benefit the pound in the second half of ’09 as the BOE remains one of the most proactive global central banks.
