Foreign Exchange Market Daily Update

The US dollar fell across the board and reached a new all-time low against the euro on speculation the Federal Reserve's plan to provide funds to banks won't be enough to ease a global credit crunch. Traders bet the Fed will cut rates by as much as 75 basis points on March 18th at the next FOMC meeting, while the European Central Bank keeps borrowing costs unchanged.

The euro soared to a record high against the US dollar as strong euro zone economic data renewed focus on European and US interest rates. The euro extended gains following a European Union report showing industrial production in the region increased for the first time in three months in January, rising 0.9 percent from the prior month. Euro zone finance ministers remain extremely vigilant on foreign exchange rates and Luxembourg Finance Minister Jean-Claude Juncker said the ECB has no reason to follow the US in slashing interest rates.

Sterling steadied overnight as UK growth remains resilient, even though England's economy is facing particular difficulties. The UK should be better positioned than the US to deal with the economy's turmoil and chances of a recession in England seem unlikely in the near term.

The Japanese yen rose overnight after Japan's economy grew faster than expected in the fourth quarter. A revised Japanese government report showed gross domestic product expanded an annualized 3.5%. Asian stocks also rose the most in two weeks, extending a global rally, after the US Federal Reserve said yesterday that it will pump as much as $200 billion into the financial system.

The Canadian dollar gained against the greenback supported by record oil prices once again. Stock markets have played an important role in the loonie's performance this year as they are used as a gauge for the health of the US economy, which takes the bulk of Canada's exports.

The Australian and New Zealand dollars remain buoyant, 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