Extended unwinding of carry trades helped the Japanese currency strengthen against its counterparts during the past week, reversing a downtrend that lasted for about a month. Investors who sold the assets bought with cheaply borrowed yen led to the strengthening of that currency against all its active counterparts. In his noted comments last week, Bank of Japan's governor Toshihiko Fukui observed that the worries related to the US sub-prime housing market and the financial market turmoil remain. Following the G-7 statement, which demanded that China take measures for a faster appreciation of the Yuan against the dollar, the Japanese finance minister Fukushiro Nukaga told his counterparts from the big seven that the value of the yen should be reflected in its economic fundamentals. The Canadian dollar, which had been on an upward trend against its counterparts since mid-September, moved in the opposite direction this week. However, the commodity currency picked up some lost ground amid the September inflation data on Friday and hit new highs versus the dollar and the euro. The Bank of Canada's consumer price index for September showed that the prices surged 0.4% on a monthly basis while analysts were looking for a 0.2% climb. The loonie also proved strong against the Australian currency but retreated from a multi-year high against the yen. Oil prices that soared to new highs amid border tensions between Iraq and Turkey this week is also likely to have impacted the US dollar. Some market participants expect the crude prices to decline next week on profit booking and the greenback to check its downward journey. Ben Bernanke, the chairman of the US the Federal Reserve said on Friday that "because the public is uncertain and has to learn about the economy, there is reason for the central bank to strive for predictability and transparency, and avoid overreacting to current economic information." He was speaking to a monetary policy conference at the St. Louis Federal Reserve Bank. His words, however, had little time to cause any effect on the currency market, before it closed for the week. The week saw the US dollar falling to its new record low of 1.43 against the euro, and a 3-month low of 2.0522 against the sterling. The European common currency strengthened despite weak economic indicators from the economy. The euro likely gained additional momentum due to hopes of improvement in political stability in the region following the signing of a new treaty by the EU leaders on Friday. The likelihood of another Fed rate cut on October 31st also weakened the dollar. The European Union leaders agreed on a new reform treaty designed to replace the defunct EU constitution that was rejected by French and Dutch voters in 2005 and gave the 27-member member bloc a more influential say in world affairs. The agreement was reached shortly after Friday midnight after the leaders resolved late objections to the draft text of the treaty by Poland and Italy, analysts said. The British currency rallied against most other majors on a stronger retail sales data released on Thursday. UK's September retail sales grew 0.6% month-over-month and 6.3% yearly, while economists were looking for 0.1% and 6.3% climbs respectively. The currency, however, proved weak against its low-yielding counterparts like the yen and the franc in the week and moved slightly downward to hit a 1-week low of 0.7004 against the euro by Friday. Falling from the previous week's 2-month high of 240.7, the pound-yen pair hit an 18-day low of 234.87 on Friday. Looking ahead, markets have relatively a light economic calendar for the unfolding week. Among a few indicators expected, the existing and new home sales data from the US may be major attraction for investors. Thursday's German October IFO business climate indicator and the US September durable goods orders are also expected to be in the spotlight. The Japanese September inflation data and Reserve Bank of New Zealand's monetary policy announcement are the other key events that are likely to be in the radar.
October 22, 2007 3:04 AM