Tuesday, February 17, 2009


The dollar and yen were both up yesterday with recession worries on the minds of traders and investors after newly released data showed that the Japanese economy had fallen off more than expected in the last few months of 2008. Support for both currencies also came after the G& failed to mention anything about currency valuations or volatility nor had they mentioned a possible solution to the current economic crisis.

The Japanese data that was released showed a historical decline in exports which caused their economy to contract by more than 3% from October to December. This was the biggest fall since the 1974 oil crisis. Forex traders believed that it was fear that was dominating investor sentiment and thus supported a rally in the yen and dollar, with very little seen being able to turn that around in the short-term.


The euro neared a two month low versus the USD that was first reached in the beginning of February, while the Pound Sterling was coming close to a two week low against the USD. Both currencies were hampered by a increase in risk aversion within the markets as many of the larger European Stocks were declining.

The Euro was also pressured by fresh worries about the Western European banks that are exposed to troubles in Eastern Europe as the S&P rating agency warned it could cut the debt rating of Ukraine based on concerns that they will not be able to refinance. To highlight the issue, government debt within the EU did poorly against other riskier equity funds.

As of 5PM GMT, The euro fell ½ of a percent to 1.281 against the USD, as did the pound to 1.4303. Against the yen, the euro dropped to 117.44 a .33% drop, while the dollar traded flat versus the Japanese currency at 91.67.

Volumes were very thin due to holidays in the United States and Canada.

Chart – GBP/USD 5 Day Performance

Several weeks ago, analysts predicted the slide of the Sterling to record lows, perhaps down to 1.20 or worse, 1.00 against the US Dollar. With the banks in England reporting huge losses and very little room for interest rate cuts, are we seeing the beginning of the slide for the Pound? The chart below shows that in the past five days, the Euro has lost more than 4% to the dollar and analysts are saying there is no end to this slide in the near future.

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