Foreign Exchange Market Daily Update

The US dollar remained weak against a basket of currencies after meager US data were released today. US economic growth was unrevised at an annual pace of 0.6 % in the 4th quarter which was weaker than the forecasted 0.7 % due to subsiding home sales and slumping inventories. GDP grew 2.2 % for all of 2007, which was the slowest since 2002. Furthermore, US workers applying for unemployment benefits rose 19,000 last week, which increased to a seasonally adjusted 373,000 in the week ending February 23rd. Investors point to the GDP and jobless claims data as further evidence that the US is falling into recession.

The Euro continued to strengthen against the dollar with signs of a weakening US labor market pointing to further rate cuts by the Fed. Analysts forecast euro momentum to continue unless weak Euro-Zone data is reported.

The British sterling remained steady against the dollar. Sterling gains were capped with ongoing concerns over UK banking sectors. Royal Bank of Scotland posted in-line earnings and raised its dividend, but also raised its writedowns on assets to GBP 2.13 billion (approximately $4.2 billion). Central bank deputy governor John Gieve indicated that the development of inflation will be the key driver to whether the BoE would be cutting rates.

The Japanese yen strengthened against the dollar after meek US data was reported. Bank of Japan board member Atsushi Mizuno expressed concern about the side effects than the merits of any interest rate cuts, and speculated that bringing Japan’s low rates to normal levels would be necessary in the long run.

The Canadian dollar strengthened against the US dollar after weak US data was reported. Furthermore, crude oil and gold traded near record levels. Commodities account for nearly half of Canada’s exports.

The Australian and New Zealand dollars continued to trade at record highs against the US dollar. With weak GDP and increase in jobless claims in the US, the greenback continues to weaken against the Aussie and the kiwi.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group