The U.S. dollar rebounded this morning after failing to hit new record lows against the euro for two straight sessions, although markets remain bearish overall on the currency. The dollar sank to multiyear lows this morning as investors grew increasingly gloomy on the U.S. economic outlook, in contrast to the more buoyant economic prospects in the euro zone and elsewhere. The dollar is now trading near a record low against a trade-weighted basket of major world currencies calculated by the Federal Reserve, the weakest level since the collapse of the Bretton Woods fixed exchange rate system in 1973.On the economic data front, America's currency showed little reaction to news that initial jobless claims fell in the latest week. The U.S. dollar could take further direction from speeches by U.S. Federal Reserve officials later in the session.
Investors took profits on the Euro after it hit all-time highs against the yen earlier in the session, pushing the single currency lower against the dollar in the absence of fresh fundamental drivers.
The British pound rose against a broadly weakening dollar overnight, bringing recent 26-year highs in sight, after data showing a resilient UK housing market despite rising borrowing and living costs. The UK housing figures were seen as likely to further reinforce expectations of an interest rate hike to 5.5 percent next month - the fourth quarter-point increase since August - as the Bank of England takes measures to bring inflation back to target. With the dollar on the defensive, analysts say the next significant leg higher for sterling could come after the release of U.S. GDP data on Friday.
The Japanese yen weakened against the dollar on the back of strong US equity gains. Strong equity markets underpin investor's risk appetite, pressuring the low-yielding Japanese currency, which is used to fund risky carry trade purchases of higher yielding currencies.
The Canadian dollar weakened slightly this morning, backing off its recent 6-month high against the dollar as the currency's recent gyrations prompted investors to rush in to cover short positions. CAD has risen 5 percent in just over a month and hit its highest level since late September yesterday. In other news, a notice that central bank governor David Dodge will not seek a second term raised questions about who might replace him. Increasing attention was being paid to how Canada's central bank views signs of rising inflation and the strength of the Canadian dollar. Strong commodity prices and higher-than-expected jobs and inflation data have driven the Canadian currency higher over the past two months, as the market has trimmed its past expectations of interest rate cuts.
The Australian dollar drifted off its recent high but firmed against a broadly weaker U.S. dollar on views that the global growth outlook remains strong despite mixed economic data in the United States. Australia is in its 16th consecutive year of growth, unemployment remains at a three-decade low and the country's minerals are in hot demand to feed China's booming economy.
The New Zealand dollar was one of the biggest movers overnight, after the Reserve Bank of New Zealand raised interest rates by a quarter of a point to 7.75 percent on Thursday but warned that the currency was "unjustified" at exceptionally high levels. It last traded at US$0.7372, down more than 1 percent.
The Mexican peso traded largely flat against its US counterpart this morning, as the currency took its cues from events in the US in determining its short term direction.
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