Expert Analysis of Today's Market

• The dollar traded mixed on Wednesday. The yen fell versus the dollar and touched a 7-week low against the euro as investors resumed carry trades. The euro was little changed, the aussie higher and the Canadian dollar and sterling lower.


• The GBP/USD has weakened in a volatile fashion since making a high in late-July. BOE interest-rate-hike expectations have been reduced and we expect the BOE’s next move to cut rates. Tighter credit conditions are likely to rise corporate and mortgage borrowing costs. The UK economy is one of the most interest-rate sensitive economies as most mortgages are adjustable. There is resistance in the 2.02-area. We believe the pair will fall and test support at the 2.00 handle.

Financial and Economic News and Comments

US & Canada

• US durable-goods orders fell in August by the most in 7 months, increasing concerns business investment will soften. Orders fell a greater-than-forecast 4.9% m/m in August after a revised 6.1% m/m gain in July, the Commerce Department said. Excluding transportation equipment, orders declined 1.8% m/m after a 3.4% gain. Orders for commercial aircraft plunged 41% in August after increasing 13% in July. The numbers are volatile on a monthly basis. On a yearly basis, orders rose 5.0% and orders excluding transportation equipment increased 1.6% y/y indicating a possible recovery in capital spending.

• Bank of Canada Governor David Dodge yesterday said the dollar’s current level was “sharply above” the central bank’s assumed range. Concerned about the recent credit market turmoil, Dodge said the tightening of credit conditions is among policy makers’ “most pressing tasks.”
  

Europe

• The Bank of England said its new quarterly survey showed a balance of 49.3% of lenders expect to cut credit supply in the next 3 months compared with 20.2% in the previous quarter. This will reduce the supply of credit to companies “significantly” in the fourth quarter as they tighten loan conditions and respond to higher market borrowing costs, the BOE said. The tightening lending standards from UK banks are making a BOE easing move more likely.
  
  
• The UK Q2 GDP grew 0.8% q/q and 3.1% y/y, the Office for National Statistics said. The yearly growth rate was raised from the previously estimated 3.0% as Q1 growth was revised higher. The UK economy is heading for its fastest expansion since 2004, but growth may be slowing on rising borrowing costs.
  


• German consumer confidence fell to the lowest level in 5 months as the euro, energy and credit costs rose. GfK AG’s confidence index for October fell to 6.8 from September’s revised 7.4.

Asia-Pacific

• Japan’s trade surplus for August widened to a larger-than-expected ¥743.2 billion ($6.5 billion), as European and Asian exports rose strongly, the Finance Ministry said. Exports rose at more than twice the pace of imports.”

FX Strategy Update