Major Forex Market Movers Last Week - 9/27/2010
The U.S. Dollar continued its slide against all the major currencies last week, extending the previous week's losses. The U.S. Dollar Index lost -2.00 points last week to close under the psychological 80.00 level at 79.40, showing an overall loss of 2.46 percent on the week.
By far, the most significant price action seen last week was against the Euro, which gained 3.4 percent overall against the Greenback.
The Euro was followed by the Australian Dollar gaining 2.4 percent, the Japanese Yen rising 1.8 percent, the Pound Sterling appreciating 1.3 percent, and the New Zealand Dollar was up by 1.2 percent.
The Canadian Dollar ended up turning in the second worst performance of the majors, and it rose by only 0.6 percent versus the beleaguered Greenback.
U.S. Dollar Delivers Dismal Performance After FOMC Minutes
The U.S. Dollar's dismal performance last week was largely due to the FOMC's dovish accompanying statement to the rate announcement where the Federal Reserve held its benchmark Fed Funds Rate at the historically low figure of 0.25%.
While the rate decision was already factored into the market, traders considered the FOMC statement especially dovish, focusing in on its comment that,
"The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate".
The FOMC also indicated that the Fed might soon commence yet another bout of quantitative easing - already nicknamed QE II by the market - to help stimulated the stubbornly sluggish U.S. economy.
The Euro Gains Big after FOMC Statement
The Euro gained 3.4 percent against the Greenback last week, rallying sharply in the wake of the FOMC's statement. Nevertheless, the Fed's rate decision and accompanying statement were not the only factors driving the Euro rally.
Another European debt auction held last week also contributed to the Euro's run up against the Greenback. This time the auction was for Portuguese 4 and 10 year bonds, with the auctions being oversubscribed by factors of 3.5 and 4.9 respectively. Nevertheless, yields rose again as the Portuguese 4 year debt sale raised 450 M Euros with an average yield on the bonds of 4.7% that was up from the 3.6% seen in July, while the 10 year auction raised 300 M Euros with yields averaging 6.2% - up from the 5.3% yield seen in August.
Australian Dollar Hits Highest Level Since June of 2008
The Aussie was the second best performer against the Greenback last week, rising 2.4 percent and trading at levels not seen since June of 2008.
AUDUSD began rallying on Monday after comments made by RBA Governor Stevens indicated an increased likelihood of an RBA rate hike of 25 bps to 4.75% in the central bank's upcoming monetary policy meeting to be held October 4th.
Financial markets now seem to be factoring in a 30% likelihood of an October RBA rate hike, with a 70% chance of an increase in its benchmark rate by November.
The Australian Dollar also benefitted from the price of gold making a new all time high of $1,299.72 per ounce on Friday.
Bank of Japan Refuses to Comment on Possible Intervention
The third best performance seen against the U.S. Dollar last week was the Japanese Yen, which rose 1.8 percent against the Greenback.
The BOJ confirmed it had intervened in the forex market during the previous week to the tune of 2 Trillion Yen or roughly $23 billion. The intervention took place throughout the single trading day and resulted in the U.S. Dollar gaining roughly 3 percent against the Japanese Yen.
Nevertheless, BOJ officials declined to comment to confirm rumors spread by a Japanese news wire as to whether the central bank had intervened for a second time on Friday when USDJPY surged from the 84.51 level to 85.38 in the space of only one hour.
The sharp spike took place during the Asian session mid-day Tokyo time.
Nevertheless, the rumor driven rally was short lived, with the rate retreating back down almost as fast as it had initially gone up after no official confirmation was received.
Forex Market Implications
The forex market has finally begun reacting to the persistent weakness in U.S. economic numbers and the long term implications for the U.S. Dollar are clear. The U.S. Federal Reserve has also reconfirmed the economy's weakness by announcing that it will contemplate a further round of stimulus programs that include buying back agency debt.
It seems that the U.S. Dollar has just begun to fall on the news, with last week's dismal performance perhaps being just the beginning of the Greenback's long awaited decline against the other major currencies.
Overall, the commodity dollars continue to be favored against the U.S. Dollar and the Euro, even more so with the price of gold making fresh all time highs - as it did once again last Friday by trading up to the $1,299.72 level.
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