Forex Trading News February 2009

The European currency fell over 100 bps to 1.2635 as a result of the Euro-Zone inflation data. Consumer prices in the region dropped further against the ECB’s 2% target, from 1.6% to 1.1%, due to lower energy costs. This could justify another rate cut by the central bank.

After the second reading of the last quarter of 2008 the pound dropped by more than 100 bps. The gross domestic product (GDP) proved that the country suffered its poorest three month period of growth since 1980. The pound showed a 1.4600 level before erasing its gains due to the period of risk appetite that recently started in the US markets.

The euro rose considerably through overnight trading, reaching a 1.2800 level as the German IFO reading surprisingly dropped to 82.6 from 83.0; the poorest level since 1990. Economists expected business sentiment to remain stable while a German stimulus package and renewed banking concerns could negatively affect each other.

Asian markets followed the US stock markets slump as the Indian rupee dropped against the US dollar, which may result in this year’s worst weekly decline. Presently the Bombay Stock Exchange benchmark index (SENSEX) is falling by more than 2.5%, which resulted in foreign investment funds converting the rupee the Indian dollar and selling their Indian stocks.

Today the global economic crisis deteriorates as the South Korean won decreased against the American dollar, approaching the two-month low level. This resulted in investors selling the emerging markets’ assets. In 2009 the South Korean won has declined by 11% against the dollar which is one of the poorest performances among the most-traded Asian currencies.

After three consecutive losses against the US dollar the British pound gained for the first time while Brittan´s stock market surprisingly went up. During the early trading session the FTSE (Brittan’s stock market benchmark index) rose by more than 1,5 percent before the pound also went up against the Japanese yen for the first time this week.

AUD fell against the Japanese yen, the US dollar and against the euro today due to the Australian senate refusal of the stimulus package which values $27.4 billion. Kevin Rudd presented fiscal and liquidity measures worth of A$42 billion which would gradually stimulate the economy.

When the US delayed the declaration of its bank bailout the European currency would drop to a 1.2880 level as risk aversion dominated markets. The euro would regain its losses although fundamental data indicate a deeper recession. The demand for export dropped for the third consecutive month which resulted in a diminution of the German trade surplus from 9.9 billion to 6.9 billion in December.

The AUD seems to be reaching its first weekly gain against the US dollar and this would be this year’s first gain against the US dollar. Traders expect the end of rate cuts soon and the Australian economy to improve before long as a result of government’s stimulus measures. The Australian dollar rose for the third consecutive day this week.

In parts of emerging Asia the deterioration of the fiscal conditions could damage the supreme ratings. Wednesday Fitch Ratings reported that the economy will grow at its lowest pace since the financial crisis of 1997 – 1998. According to Fitch Ratings the non-Japan Asian growth will tumble to 4.2% in 2009 (against 6.9% in 2008).

Today, the European currency fell against the yen while traders preferred ‘safe cash’ after selling the risky assets as the Asian stock markets stumbled. Investors believe that the inflation report will increase the chance of the European Central Bank lowering the interest rate. The early trading session resulted in a major fall of the euro against the US dollar, breaking the record minimum level of December.

Some regional banks showed moderate results for the last quarter of 2008 today as the European currency gained modestly against the main currencies. The Commerzbank AG and the Dutch ING Groep NV reported better results in the fourth quarter of 2008 than most estimates showed, which surprised market analysts.