Foreign Exchange Market Daily Update

The US dollar plunged to a new record low against the euro after the US unexpectedly lost jobs in February for the second consecutive month, indicating the world's largest economy is in a recession. Payrolls fell by 63,000, the most in five years, and the jobless rate declined to 4.8%, pointing to a shrinking labor force. The weakening labor market, lower home prices, higher fuel bills, and a global liquidity squeeze will force consumers to further reduce spending. In other news this morning, the Federal Reserve plans to boost lending to banks this month to offset a deepening credit crisis which is threatening to tip the US economy into a recession.

The euro turned lower against the US dollar after hitting record highs, as the market took profit on gains made following a drop due to negative US jobs data for the second straight month. As inflation continues to be the main concern in the euro-zone, the ECB is unlikely to cut interest rates any time soon.

The British pound strengthened to mid-December 2007 levels versus a struggling US dollar as the market bet that interest rate differentials will continue to widen. US interest rates have come down 1.25% this year and the Fed is expected to cut its benchmark rate by at least 75 basis points by the end of March.

The Japanese yen rose to late 1999 and early 2000 highs overnight against the US dollar as the Nikkei 225 index fell 3.3% overnight, taking its weekly decline to 6.1%. However, the dollar rebounded this morning as attention shifted to the Federal Reserves moves to ease tight liquidity conditions.

The Canadian dollar gained against the greenback as data showed the domestic economy created 43,300 jobs, five times more than expected, in February. Strong oil and gold prices also continue to lend support to the commodity-linked currency.

The Australian and New Zealand dollars remain strong, reinforced by rising commodity prices and improved appetite for riskier assets and higher-yielding currencies.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group