Daily FX Commantary, Analysis – Finotec

Yen rises as borrowing rates left unchanged

 

By Raj Ratna

Finotec Analysis Team

 15 February 2008

 

 

Ben Bernanke, the US Federal President, delivered his testimony before the senate. He emphasised that there might be sluggish growth in the medium term but believed the US economy will pick up later in the year. Bernanke also foresees investment banks writing of more losses from sub-prime mortgages. The US dollar fell against the Euro and the Yen. The Euro gained from lows near $1.4560 to highs around 1.4645 and was last seen trading at $1.4650 8:50GMT. Technical analysis indicates bounce levels at $1.4630.

US trade balance improved in December, the deficit shrinking to $58.8b from $63.1b, and better than the market was forecasting of $61.5b. The improvement was due to a $2.2b fall in imports combined with a rise in exports of $2.2b. The fall in imports reflected slowing domestic growth, where as exports increased due to the weaker greenback. Initial jobless claims were as expected for the week ended February 9th at a still elevated 348k.

The Bank of Japan left borrowing rates unchanged at 0.5%, although the nine member board highlighted that the slowing global economy could force them to cut rates later in the year. The Japanese economy expanded 0.9% in the quarter versus expectations of 0.4%. Yen reached highs of 108.33 this morning but there seems to be strong resistance levels at 108.60. Yen was last seen trading at 108.26 9:10GMT.

UBS announced it would write down further losses in sub-prime mortgages. The Swiss bank announced a fourth quarter loss of $11.3 billion. Shares tumbled almost 7% lower. Share markets were down in general yesterday after Bernanke’s speech. The Dow Jones and NASDAQ fell above 1% and 1.5% respectively.

The US Industrial Production month on month out today is expected at 0.1%. This flat to mildly positive result in January is offset by weakness in utilities. The lift in the January ISM to back above 50 suggests the outlook for the manufacturing sector is relatively more positive than for the service sector, as it benefits from the healthy external economy and a depreciating USD.

Michigan consumer confidence surprised onlookers with an upside result in January. The market is expecting a figure of 77 for February later today; despite pessimistic factors such as falling house prices, equity market weakness and high petrol prices. January confidence was 78.4, and with all the factors listed above, it is hard to see that the US market will maintain the recovery, with confidence falling to below 77.