Daily currency report

The US dollar tumbled across the board; a move fuelled somewhat by economic fundamentals but more so by volatile year-end trading which tends to magnify currency flows. Strong demand for US Treasury Bonds, coming on the heels of Tuesday’s weaker than expected US consumer confidence and house price data, suggests that investors are still worried about the US economic recovery. The under-fire greenback is now trading at another new all-time low versus the Swiss franc with the “Swissie” further supported by encouraging KOF leading indicators data which hinted that the Swiss economy will continue to grow through 2011.

A weaker dollar also allowed sterling to rebound from three-and-the-half-month lows while the yen rose to seven-week highs and dangerously into Bank of Japan intervention territory against its US counterpart, as Japanese businesses continue to bring home overseas earnings. However, some of the biggest movers in currency markets right now are those with strong links to oil and precious metals as commodity prices rise towards record highs. Australia, a major exporter of metals, will benefit and as such, the Reserve Bank of Australia should again tighten monetary policy in 2011. The Aussie dollar reached new 28-year highs against the greenback, attracted by investors who expect the divide between yields in Australia and other major economies to widen further.

Weekly jobless claims due for release could put the US dollar under further selling pressure. There is a continuing threat of US unemployment to the country’s recovery process for which the most obvious remedy is more Fed stimulus.

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