Expert Analysis of Today's Market

• The greenback rallied versus the yen but fell against other major currencies on Thursday. The yen fell against the dollar and in cross trades on renewed risk appetite. Global stocks rose after a capital injection into troubled mortgage company Countrywide Financial by Bank of America reassured investors the fallout from the global credit rout will be limited. The higher-yielding Australian and New Zealand dollars rose about 3% versus the yen.


• The Bank of Japan held its key interest rate at 0.5%, as expected. The BOJ made little change to its assessment of the Japanese economy, maintaining that growth would continue to expand “moderately” supported in part by ongoing foreign demands. The BOJ’s move seemed to encourage carry trades. The yen pared its steep decline on weakness in US stocks in early afternoon trading in New York.


• The US dollar index is testing the resistance of the long-term downward sloping trend-line. After finding support at the 80 handle, the first attempt at breaking this bear-trend failed. If the resistance is broken, the greenback will rally.

Financial and Economic News and Comments

US & Canada

• US jobless claims fell 2,000 to 322,000 on a seasonally-adjusted basis in the week ended August 18, the Labor Department said. Claims for the August 11 week were revised to 324,000 from 322,000. The 4-week average increased 4,750 to 317,750. Continuing claims rose 16,000 to 2,572,000 in the week ended August 11, the latest week for which such data are available. Today’s numbers show a relatively strong labor market.

Europe

• Germany’s Q2 GDP rose 0.3% q/q after a 0.5% q/q increase in Q1, the Federal Statistical Office reported.


• UK business investment increased a seasonally adjusted 0.8% q/q in Q2, following a 0.6% q/q decline in Q1, the Office for National Statistics said. Investment rose 7.4% y/y.

Asia-Pacific

• The Bank of Japan, as expected, kept its benchmark interest rate at 0.5% in an 8-1 vote after its two-day meeting ending today. Atsushi Mizuno was the sole dissenter for a second straight meeting, proposing a rate rise. The BOJ sees the Japanese economy expanding moderately, industrial output on uptrend and inflation near zero but sees the long-term inflation trend rising.


• Bank of Japan Governor Toshihiko Fukui said keeping interest rates too low may spur risky investment, signaling the BOJ still intends to normalize borrowing costs even after the global credit rout.

FX Strategy Update