Forex markets are trading indecisively this morning. Uncertainty about the outcome of the Mideast Summit is creating paralysis. Traders are not convinced that calm will be restored in the West Bank. In addition, there is concern that pressure on oil prices may not dissipate easily.
Still another cause for uncertainty is the possibility of further
European Central Bank
intervention to support the euro. With this prospect still hanging over the markets, traders are keeping positions small and holding off from any attempt to push the currency sharply lower.
In the past 24 hours, a number of euro-zone spokesmen have tried to counter ECB President
's suggestion yesterday that the ECB was not interested in further intervention -- remarks that led to a disastrous new tumble for the euro. Late yesterday French Finance Minister
asserted that the central bank "had not changed" its position on possible intervention.
The single currency is opening little changed around $0.84.90, right in the middle of yesterday's 1% range. "Euro/dollar is the talk of the moment -- there's even a rumor that he
Duisenberg has resigned," said Matthew Clements of
Prebon Marshall Yamane
. "The euro-zone finance ministers are trying to repair the damage," he added.
Euro-zone consumer prices rose 0.5% in August, for a 2.5% year-on-year increase. The main factor behind the sharp gain was the impact of higher oil prices.
Although the euro now seems to be on slightly firmer ground, analysts continue to note that international capital flows are still headed toward the U.S. market. The euro cannot expect to see much recovery until these flows are reversed.
The yen continues to be on the sidelines. It is opening slightly softer at 108.10. The euro/yen cross is unchanged at 91.80.
Dollar/Swiss continues its recovery as tensions in the Mideast ease. At the opening, the currency is firmer at SF1.7800. The euro is little changed against the Swiss franc at SF1.5110. The Swiss franc would likely make further gains vs. the euro if international tensions pick up again.
The pound is sharing in the renewed weakness of European currencies vs. the dollar. It is opening today even lower at $1.4350. Euro/sterling has strengthened to $0.5920 as the pound loses ground across the board. The overriding problem for sterling is the 0.5% adverse interest rate differential that exists between the U.K. and the U.S., which makes it very attractive for traders to sell pounds in favor of dollars.
Clements said of the pound's weakness, "There's nothing specifically sterling related -- it's bullish sentiment around the dollar as U.S. equity markets recover. "
The Canadian dollar remains soft and is opening at C$1.5180.
The Australian dollar continues to lose ground. It is opening at yet another new record low of $0.5195.
Not surprisingly, the New Zealand dollar is also at record lows at $0.3935.
The outlook recently brightened for the ailing Philippine peso. After falling six days in a row and losing over 10% in value, the currency has had a solid 0.9% rally overnight. Last week the central bank raised interest rates from 11% to 15% but last night brought the first sign of a positive effect from this action. The peso's gains may not be long-lasting however; further declines are expected.
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