Daily Currency Report

The unwinding of carry trades is still present in the market although coming in fits and starts, reflecting the nervousness about the extent of problems in the US housing market and credit sectors.

GBP

The BOE left UK interest rates unchanged, a widely expected move especially given the current volatility in the currency markets. Although the pound remains strong against the majors, it did fall against the Australian dollar, Swedish Krona and the South African Rand on speculation the UK will fall behind those countries in raising interest rates.

USD

Awaiting the release of the July non-farm payrolls report, they are expected to rise, indicating that the labour market remains generally robust. The dollar is broadly stable, with further gains on Wall Street providing some support.

EUR

The ECB left interest rates on hold at four per cent. However, the tone of comments made at the press briefing following the rate announcement indicated that rates will be increased to 4.25 per cent at the September policy meeting.

JPY

The yen had made strong gains over the last week as turmoil in global asset markets prompted investors to cut back carry trades, in which the low-yielding yen is sold to fund the purchase of riskier, higher-yielding assets elsewhere. The yen has risen 3.8 per cent over the past week or so but investors will be keeping a close eye on stocks or signs that risk appetite is returning.