Currency Markets Taking Cue from Sliding U.S. Stocks

by: Grace Cheng

The currency market is taking its cue today from the performance of US stock markets in the absence of major US economic releases. The US dollar initially rose against the Euro, Swiss franc, British pound and Japanese yen but is now trading lower versus these currencies.

European Central Bank’s Juergen Stark said Wednesday that markets understood the central bank’s signal to raise interest rates next month, but he poured water over the speculation of a series of interest rate increases. ECB’s Noyer is also sounding a little hawkish today, saying that while a July rate increase is possible, it is still not guaranteed, and also repeated what ECB president Trichet said last week, that the ECB is in a state of heightened alert.

Euro strength has waned off, and it’s possible the US dollar could consolidate ahead of this weekend’s Group of Eight meeting in Osaka, Japan, where G-8 finance ministers may or may not talk about currencies. USD bulls are not too keen to jump into the market today, seeing how US stocks are off to a weak start, falling under shorting pressure, and oil prices are still at elevated levels.

WaMu and Lehman Stocks Sliding Again 

Stock investors aren’t welcoming the idea that Fed officials are sounding increasingly worried about inflation in the US as that would mean possible rate hikes which would put a dent into the already tough business environment. The Dow was down more than 150 points; Nasdaq and S&P 500 are also in the red.

Seattle-based Washington Mutual (NYSE:WM), the largest US savings and loan company, is one of the biggest losers within the banking sector, falling a more than 13% at one point today. There are also rumors of a huge unexpected writedown by investment bank Goldman Sachs (NYSE:GS) when it announces quarterly results next week, causing the S&P 500 financial sector to dip to a five-year low today.

Lehman Brothers (LEH) fell more than 5% today after the bank said it would lose $2.8 million in the second quarter and is raising $6 billion in capital. So far, Lehman has declined more than 23% in the last four sessions. Right now, shorting financial stocks just seems to be a better bet.


Australia unemployment rate 0130 GMT

Bank of Japan rate decision (rate expected to stay at 0.5%)

US retail sales, import price index, initial jobless claims 1230 GMT

US business inventories 1400 GMT

New Zealand retail sales 2245 GMT