Dollar Surrenders Gains
The dollar fell against the Euro on Wednesday and surrendered recent gains against the European currency. The fall was blamed on low U.S. interest rates and recent economic figures from the US. Currency markets including the interbank Forex have been volatile since the current economic crisis began.
Bleak Euro Zone Data
Despite the Euros slight gains data from the Euro Zone continues to paint a bleak economic picture. News from the Euro Zone reveals a rapidly weakening economy, and inflation easing. The European Central Bank is expected to cut rates again next week which will have ripple effects throughout the Interbank Forex market.
ECB to Ease Monetary Policy
Data released Wednesday showed Euro Zone producer prices fell sharply in November, and a record monthly decline on a sharp drop in energy costs. This followed data released Tuesday that showed a smaller than expected rise in consumer prices prompting speculation that the European Central Bank will be ready to ease monetary policy. Interbank Forex traders will be watching the actions of the ECB closely.
Howard Archer, an economist at IHS Global Insight, stated, “Given widespread evidence of sharply diminishing inflationary pressures and deepening euro zone recession, we believe there is a compelling case for the ECB to cut interest rates appreciably further.”
Japan to Scrap Capital Gains Taxes
The Japanese Yen surrendered some recent gains due to a newspaper report that Japan’s government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds, which could prompt capital flows into the country.
The dollar fell 0.5 percent against six major currencies in Wednesday’s trading. Audrey Childe-Freeman, senior currency strategist at Brown-Brothers Harriman in London said, “The dollar rally is showing signs of fatigue. Maybe there is a bit of nervousness ahead of the U.S. non-farm payrolls on Friday. “The depressed state of the economy is something that is priced into the market already, but we’ve seen a remarkable recovery in the dollar and that’s losing momentum. Plus non-farm payrolls will present a pretty ugly picture.”
473,000 Jobs Lost in November
It is expected that the new Plus non-farm payroll report will pain a bleak employment picture for the United States and will also affect global Interbank Forex traders. US data, released on Wednesday include a precursor to the Friday’s job report that is expected to show that 473,000 jobs were lost in December.
Currency markets, including the Interbank Forex have been extremely volatile in 2008 and this volatility is expected to last well into 2009.
