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USD: Can The Fed Help?

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TODAY'S BIGGEST PERCENTAGE MOVERS

THE STORIES IN THE CURRENCY MARKET

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%
9/20 Meeting 11/02 Meeting
NO CHANGE 66.0% 66.0%
CUT TO 0BP 34.0% 34.0%
CUT TO 50BP 0.0% 0.0%

USD: CAN THE FED HELP?

Currencies and equities took a beating today after the Bureau of Labor Statistics revealed zero job growth in the month of August – yes that's right, a big fat 0. The dollar weakened against the Japanese Yen and Swiss Franc but its strength against higher yielding currencies shows that the greenback has not lost its safe haven appeal. As expected, the sell-off in USD/JPY has been limited by fear of Bank of Japan intervention. With another round of stimulus from the Federal Reserve a near certainty at this point, it should only be a matter of time before the dollar comes under pressure once again from pre-QE3 trades. The long weekend in the U.S. and the unofficial end to summer has made it a very quiet trading day and many people could be waiting until Tuesday when they return from vacation to lay on their QE3 trades.

5 of the Fed's options for September:

EUR: NFPS TRIGGER LONGEST STRETCH OF LOSSES SINCE JAN

News that the U.S. government plans to sue a dozen banks for misrepresenting the quality of mortgage securities put pressure on all currencies including the euro at the start of the New York session. However it was the weak non-farm payrolls report and risk aversion in general that pushed the EUR/USD below 1.42. This week, the single currency lost value against the U.S. dollar four out of five trading days. It was also the longest stretch of consecutive weakness since the beginning of the year. Although today's sell-off in the EUR/USD can be largely attributed to risk aversion, concerns about fiscal finances in Europe have also deterred investors from buying euros. In fact, the situation is so dire that European Central Bank President Trichet said he would not rule out issuing a gold backed euro bond in order to attract investors. If the stability of the German and French economies fails to do the trick, the ECB may have to resort to this option even though it is not the most popular one at this time. Meanwhile the weak U.S. non-farm payrolls report has made demand for Swiss Francs even more voracious. Since the beginning of the week, the franc has appreciated more than 4 percent against the euro, 3 percent against the pound and 2 percent against the U.S. dollar. The recent deterioration in Swiss economic data has not stopped investors from parking their money in the safety of the Franc. It appears that the euro is no longer the best anti-dollar, the Franc is. With changes to austerity programs bringing the region's fiscal troubles back to the forefront and U.S. economic data showing continued renewed weakness, the Franc has become the market's favorite safe haven currency. Unfortunately the recent deterioration in Swiss data could force the Swiss National Bank to take decisive to fight against Swiss strength. Their options are limited - negative interest rates have failed to halt the currency's rise and intervention has only stopped the currency from rising temporarily. Nonetheless, if the Franc continues to appreciate, the SNB may have no choice but to act, even if it ends up being futile.

GBP: ONLY PAIR TO RISE

The British pound had strengthened against both the euro and U.S. dollar. It was the only currency that outperformed the U.S. dollar. As European and U.S. economies showed more deteriorating signs, sterling reaped the benefit of being a safer currency. However, U.K. is not without its own woes as it deals with a stalling recovery and high inflation. Construction PMI printed at 52.6 in August versus 53.2 eyed. The sector grew at the weakest rate in eight months with new orders falling to the lowest level for more than 30 years in the second quarter. Although construction only accounts for 6 percent of U.K. GDP, the weakening data is the latest sign that the economy is slowing. Adding more salt to the wound, the British Chambers of Commerce (BCC) downgraded its forecast for the country's economic growth for the third time. The economy is now expected to grow a mere 1.1 percent this year. David Frost, BCC director general, said the government had to do more to help companies grow. BCC added that the Bank of England should consider another round of quantitative easing. But MPC member Martin Weale argued that inflation is hurting household and cutting spending powers. As a result, consumer confidence remains sluggish in August according to GfK survey this week. Looking ahead, service PMI, manufacturing production, and PPI will be published next week. Furthermore, with the economy under pressure, the Bank of England is expected to hold the rate steady on Sept 8 th . Nonetheless, trading in cable could be volatile as the talk of another round of QE increases.

AUD: SHRUGS OFF RISE IN GOLD

JPY: CAPITAL SPENDING HIT BY STRONG YEN

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GBP/USD: Currency in Play for Next 24 Hours

The GBP/USD will be our currency pair in play for Monday. On Monday, the U.K. will release its PMI services report for the month of August and the official reserves at 4:30 AM ET / 8:30 GMT. No economic data will be released from the U.S.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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