Japanese and Swiss look to devalue currencies

Euro – Hopes are for some reason running high that tomorrow’s Franco-German summit will produce further steps towards resolving the European sovereign debt crisis. The meeting was announced by Paris at the heart of last week’s drama when French banking names were coming under further investor scrutiny. It’s hard to understand what fresh impetus the duo can agree upon that hasn’t already been signaled to the market with limited impact. The euro is, however, firmer in anticipation and as some of last week’s pressure on financial markets continues to unwind. The euro ran up to its session high at $1.4379 in the half-hour after the New York Fed signaled the regional economy was faltering in August.

British pound – The pound also advanced against the dollar despite a rocky start, rebounding from $1.6258 before trading at $1.6373 after dealers picked on the dollar after the New York Fed report. The pound slumped by 0.4% per euro as dealers’ recent view towards the pound has changed. Despite a still red-hot debt crisis across the English Channel, investors surveying the impact of Britain’s harshest austerity measures since the Second World War are growing increasingly concerned by the impact on growth. They still expect stronger growth in the Eurozone. Last week in parliament Chancellor Osborne told lawmakers that going back on austerity measures was the wrong thing to do despite fraying social fabric in Britain that had resulted in several nights of riots and looting across the nation. The euro rose to buy 87.87 pence.

Aussie dollar – Despite a surge in the value of the euro per dollar, investors still seem wary over jumping back in to the growth-sensitive units of Australia and Canada. We’ll learn more about the thinking of the central bank on Tuesday when the minutes from the RBA’s latest monetary policy committee are released. While the European units rebound against the dollar, the Aussie seems to have lost some of its shine after most analysts started to predict the central bank would be forced to cut interest rates going forward in order to couch a global downturn for growth. The unit recently bought $1.0434 U.S. cents but has yet to move beyond its earlier session highs.

Canadian dollar – The same nervousness kept the Canadian unit confined to a narrow range against the dollar and recently traded at $1.0130 U.S. cents. The earlier Empire State manufacturing index that weighed on the dollar is equally negative news for the Canadian unit given the fact that some three-quarters of its exports wash-up on American shores. The Canadian unit remains above parity despite having revisited that point in the heat of last week’s breakdown. For now it looks safe above there but as the week draws on this could be a key relationship to watch should investors force equity prices back to the point of “where next?”

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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