Market review for 2 – 6. 03, 2009

Due to the stock markets’ drop on Monday, the US dollar started the trading week with a decrease against its major competitors. In addition, during the previous weekend the European leaders did not support the proposal to offer the anti-crisis measures’ package to the countries of the Eastern Europe. The EUR/USD pair reacted with a sharp drop and reached its minimal level of $1.2542. According to the published information on Monday, one of the largest British banks HSBC Bank still needed additional financing. And the PMI manufacturing index in Great Britain decreased for February till 34.7 level against the forecasted 35 mark. The sterling reacted with a drop, and the GBP/USD rate reduced to its session minimum at the level of $1.4029. On the next day the pound dropped to $1,3990.

On Tuesday the euro correlated to the dynamics of the stock markets. With strengthening of the stock indices, the European currency increased, and the US dollar dropped. As the American dollar, the yen turned to be under pressure and the USD/JPY pair reached a daily maximum at the Y98.00 level. On the same day the Central Bank of Canada reduced the principal interest rate for 50 basic points until the level of 0.50%. Accordingly the Canadian dollar dropped against the American dollar. And the unexpected decision of the Reserve Bank of Australia to leave the principal rate unchanged at the level of 3.25% increased the market participants’ activity and their eagerness to take risks. The Australian dollar gained positive dynamics.

The political instability in Japan reinforced the pressure on the yen, and on Wednesday the USD/JPY pair reached maximums in the range of Y99.50. On the same day an unexpected sharp drop of the quarterly GDP in Australia was published. This indicator showed a decrease to -0.50% against the expected 0.20%, which had a negative influence on the investors’ attitude to the risk-sensitive currencies and therefore increased the demand for the US dollar as a shelter-currency. In addition to that, the US dollar strengthened its positions against the euro, since the market participants expected, that the FRS would be in favor of increasing the financial support, aimed to help the US banking system. At the same time the expectations regarding the reduction of the principal rate by the ECB pressured the euro against the US dollar.

On Thursday the dollar continued to strengthen, since the stock markets’ drop influenced the increased demand for the American currency. As a shelter-currency we saw some minor consolidation of the yen as well.

According to the expectations, the ECB reduced the principal rate for 50 basic points till the 1.5% level on Thursday. The euro continued to decrease against the US dollar after the announcement of the ECB president, Jean-Claude Trichet, who hinted that there would be a possible further reduction of the principal rate. As a result, the EUR/USD pair incurred losses till the $1,2540 level. As the analysts forecasted, the Bank of England reduced the principal rate for 50 basic points till the record breaking level of 0.50%. Accordingly, the sterling decreased against the American dollar to its minimums around $1,4030.

By the end of the week, the American dollar fell under pressure after the release of the US nonfarm payrolls data, which showed an expected decrease. As a result, the euro grew against the US dollar and reached a session maximum above the 1.27 level, and the British pound increased till the 1.4305 mark.