Currency Action This Week
The U.S. Dollar is performing stronger to close out the trading week, preventing the Euro from touching 1.5000. The buck was very sensitive to declines in the Gold and Silver markets while dodging the bullets of global event risk, beginning with worldwide central bank activity this week. The decision to cut interest rates to 5.5% in Great Britain and keep rates unchanged at 4% in the European Union both confirmed a growing fear of the unknown among central bankers – the mystery of just how bad the subprime credit market fallout will hurt the global economy, considering that defaults on mortgage loans in the U.S. are now at a 20-year high. The Bank of England adopted a more aggressive approach by cutting rates for the first time in 2 years, but the ECB only discussed the possibility of hiking rates before ultimately deciding to hold off on any action until next year. Meanwhile, the Bank of Canada surprised everyone with its decision to cut the base lending rate by a quarter of a point, setting off violent moves in the USD/CAD pair.
The Federal Open Market Committee gets its turn to make a policy statement on December 11th. Members have much to discuss about the current and future state of the American economy and its global performance on foreign exchange. Considering England, Europe and Canada have taken their concerns about Dollar weakness to the media, and the United Arab Emirates came within a hair of moving its currency reserve peg away from the buck, the pressure on Fed Chairman Ben Bernanke to steer the economy clear of disaster has rarely been so intense. Support from the Bush administration came in the form of a 5-year freeze on adjustable rate mortgages, which had been due for a potentially devastating reset in 2008. This is a pre-emptive strike to avert mortgage defaults for the estimated two million homeowners due for a substantial hike in their cost of living.
Looking forward to this mornings’ unemployment report at 8:30 AM Eastern, analysts predict a small increase in the jobless rate to 4.8% during November, compared to October’s report of 4.7%. Initial jobless claims reported Thursday showed a dip of benefit claims to 338,000, lower than the forecast of 340,000. And consumer credit will round out the week at 3:00 PM Eastern, with estimates calling for a rise of 2 billion from the previous report. As Americans' debt increases, economic growth slows, and food and gas costs continue to rise, it may not be long before consumers are the ones to demand relief from the weak U.S. Dollar.
Heather Mitchell, Currency Analyst
