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Japanese Yen — Best Performer This Week

The Japanese yen, together with the Swiss franc, was the best performing currency this weak as the civil unrest in North Africa and Middle East resulted in the uncertainty among traders and caused the shift of sentiment toward risk aversion.

Tunisian President Zine El Abidine Ben Ali was ousted last month and Egypt’s President Hosni Mubarak resineg on February 11, encouraging protester in other countries of North Africa and the Mideast. Leader of Libya Muammar Qaddafi lost control of most part of the country’s east, which is rich in oil, to the rebels. April delivery for crude oil

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Chinese Yuan: Further Appreciation is Inevitable

Relatively speaking, the Chinese Yuan has been on a tear, appreciating ~1% in a little more than a month. One has to wonder whether this is a concession by the People’s Bank of China (PBOC) that its exchange rate regime is not viable or whether its instead a political sop. The question on everyone’s minds, of course, is, will it continue?

Countries around the world have continued to criticize China for its unwillingness to allow the Yuan to appreciate. At last week’s G20 meeting, US Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke separately took aim. “They’re still heavily leaning against the forces trying to push their currency up,” complained Geithner. “The mainte

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Existing Homes Data Fails to Help the Dollar

Better than expected U.S. housing market numbers failed to help the dollar on a day when the greenback is being sold against the euro, British pound, Japanese Yen and other major currencies. Existing home sales rose 2.7 percent in the month of January, marking three back to back month of positive momentum in the housing market. Sales of existing homes surged in December, leading many investors to look for a natural pullback in January. However in addition to climbing to the highest level in 8 months, existing home sales growth in December was also revised higher. The total number of units sold hit 5.36 million, up from 5.22 million the previous month.

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Thai Baht Gains as Economy Grows

The Thai baht gained today on the speculation that the policy makers won’t prevent the appreciation of the currency as the economic growth increases the inflation pressure.

The report today showed that Thailand’s economy expanded in 2010 with the fastest pace since 1995. The fast economic growth of the Asian countries causes the imbalances in the global economy and the Asian governments may allow their currencies to appreciate and reduce the import gains.

USD/THB fell from 30.5750 to 30.5450 as of 14:53 GMT today.

If you want to comment on the Thai baht’s recent action or have any questions regarding this currency, please, feel free to reply below.

The Obama Budget and the Dollar

Last week, the Obama Administration released its fiscal 2012 budget to much fanfare. Unfortunately, the budget makes only a token effort to address the rising National debt, and forecasts a budget deficit of $1.1 Trillion. While the release of the budget failed to make a splash in currency markets, traders would be wise to understand its implications for the future.

The budget proposes spending of $3.7 Trillion in 2012, and forecasts receipts of only $2.6 Trillion. As usual, entitlements (Social Security, Medicare, and Medicaid: $2 Trillion+), Defense ($760 Billion), and net interest on debt ($250 Billion) are projected to consume the brunt of spending.

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Dollar Weakens on Belief that Fed will Trail Behind

With equities climbing to a fresh yearly high, the sell-off in the U.S. dollar can be largely attributed to the improvement in risk appetite. This morning’s U.S. economic reports were mostly better than expected, lending credibility to the Federal Reserve’s recently upgraded growth and inflation forecasts. Central banks around the world have grown more optimistic about the outlook for their own economies and this optimism affected rate hike expectations. Last month, investors did not anticipate any tightening from the Federal Reserve this year but since then, 25 and almost 50bp of tightening is now being priced in. However even in this aggressive scenario, the Fed is still expected to trail behind the ECB and the BoE as both of these central banks are expected to raise interest rates by as much as 75bp before year’s end. This dynamic has led to underperformance in the U.S. dollar tha Read more text…

King Cools Expectations for Interest Rates Hike, Sterling Drops

The Great Britain pound weakened today after Bank of England Governor Mervyn King suggested that the Bank isn’t ready for the interest rates hike.

The inflation exceeded the target of the BoE for more than a year, causing the Governor to write the explanation to Chancellor George Osborne. This letter fueled hopes for the increase of the interest rates. King cooled these expectations today at the press conference about the Inflation Report in London:

The market has gotten it into its head that there would be three, maybe four interest rate hikes by the end of the year, but that’s too excessive. There is clearly a fear that th

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USD: Continued Gains Hinge Upon Upcoming Data

The U.S. dollar ended the week higher against all of the major currencies except for the Canadian dollar which benefited from a stronger trade report. It has been a good week overall for dollar bulls as risk aversion, positive economic data and disappointments abroad lifted the greenback against all of the major currencies. Although the trade deficit widened in the month of January, lower jobless claims and stronger consumer confidence made investors more optimistic about the outlook for the U.S. economy. Federal Reserve President Ben Bernanke is still on the fence about extending asset purchases even though some members of his monetary policy committee have vocally opposed an extension. The biggest market development for the U.S. thi Read more text…