BOJ Actions Pressure Yen
The dollar held recent gains despite a rise in stocks and commodities. The Bank of Japan said on Tuesday that it would provide 10 trillion yen ($115 billion USD) at a rate of 0.1% to stem deflation and prevent another recession in the already troubled Japanese economy. The Japanese government is expected to provide a stimulus package to shore up the economy. Barclays Capital’s Yamamoto stated, “The focus now shifts to the government and the size of the supplementary budget and whether there will be any action by the Ministry of Finance in the foreign exchange market.”
UK Emerging From Recession
The pound held on to yesterday’s gains against the US dollar and rose against the weak yen. Bank of England chief economist Spencer Dale said that the UK economy is emerging from the recession but cautioned that a number of factors could hinder recovery. He also said that stimulus programs combined with a weaker pound have supported recovery and said that credit is likely to remain tight. The Bank of England will hold its next policy meeting on December 10th. Many traders and investors are waiting for the results of the European Central Bank meeting on Thursday. The bank is expected to keep rates at 0.1% and announce that December’s 12 month funding will be the last. Carsten Brzeski of ING Financial Markets said, “The meeting should witness the very first steps towards the exiting of super-loose monetary policy. Even though the prospect of rate hikes any time soon remains distant, the ECB will start gradually unwinding its non-standard measures.”
Upcoming Data
Traders will also be watching US job figures, due Friday, closely. The report by Automatic Data Processing is expected to show that 155,000 jobs were lost in November compared with 203,000 jobs lost in October.
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UAE to Stand Behind Banks
The dollar continued its long term decline against other major currencies after the United Arab Emirates said it would stand behind local and foreign banks to relieve the Dubai World debt crisis. The yen also fell after the Bank of Japan announced they would intervene to mitigate the effects of a stronger yen which has hurt Japanese exporters. On Monday the dollar fell after Asian stocks rose after the announcement by the UAE which pledged support to regional banks and Dubai’s neighbor Abu Dhabi promised support to selected Dubai companies. The actions cooled demand for greenbacks which gained last week on concerns about Dubai’s debts. Dubai World eased investor fears on Monday with an announcement that it intends to restructure.
Japan’s Government Intervenes
The yen fell after the Bank of Japan announced measures to inject liquidity into the Japanese financial system and to keep three month rates at historic lows. Most major currencies strengthened except for the US dollar and the yen as stocks and commodities strengthened. Stephen Gallo of Schneider FX in London said, “The two primary funding currencies, the dollar and yen, are performing badly today versus non-quantitative easing currencies and higher-yielders. The moves by the BOJ caused a big shakeout of long yen positions, and a weaker yen has helped asset price movements elsewhere … as the weak yen to a degree — but maybe not as much as dollar — drives the risk trade.”
US Employment Figures Due This Week
The Aussie dollar was once again a winner and rose almost 1% against the US dollar to $0.9230 after the Reserve Bank of Australia raised rates to 3.75%. The euro gained 0.4% against the greenback trading at $1.5065 on Tuesday. This week the US will release its construction spending and pending home sales report and on December 4th the non farm payrolls and unemployment report will be released. Most analysts expect the reports to show a prolonged recovery for the US.
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