Forex Investment and Currency Trading

The dollar fell on Friday to its lowest in five months against a basket of currencies on concern about the triple-A ratings status of the United States after Britain’s outlook was downgraded the previous day. S&P said it could downgrade Britain’s triple-A credit rating, a move that initially hit the pound but then sparked broad selling of U.S. stocks and bonds on fears that record U.S. deficits could lead to the same warning. After hitting five-month lows in the past three days, the dollar index looks to be heading for its biggest weekly fall since the Federal Reserve launched its large-scale purchases of U.S. Treasuries in late March. Moody’s Investors Service on Thursday said it is comfortable with its triple-A sovereign rating on the United States, but the rating was not guaranteed forever. A big test of investor appetite for dollars and dollar-denominated assets will come next week when the U.S. Treasury auctions $101 billion of two-, five- and seven-year paper.

EUR/USD

The euro gained against the greenback as some fears have been raised that the United States triple A credit rating may be at risk, similarly to the situation in Britain. The euro has made significant gains so far this week as the euro tracked equities upward.

GBP/USD

GBP fell on Friday, driven by losses versus the EUR. However, GBP stayed in range of a 6 1/2-month high as traders dumped the USD on speculation that the United States’ triple A rating may be at risk as well as Britain’s. In addition, GBP showed little reaction to today’s data showing that the UK economy shrank an unrevised 1.9 percent on the quarter for the first three months of the year. The UK currency has largely recovered after tumbling on Thursday, when S&P surprised markets by cutting its outlook on the UK to “negative” from “stable,” and saying that government debt could near 100 percent of gross domestic product.

USD/CHF

Swiss franc continued to firm against the dollar on Friday bringing gains against the greenback to almost 3 percent for the week as investors risk aversion continued to subside. The franc also weakened against the euro in early trade, while it was 0.2 percent firmer against the dollar.

AUD/USD

The Australian dollar powered to an eight month high against a weak US currency on Friday as fears that ballooning debt may cost the United States its top notch credit rating saw investors dump the greenback.  For the week the Aussie rose more than 3 percent, helped by gains in stock markets for most of the week, Australia’s higher yield environment and growing signs of a recovery in China.

USD/MXN

Mexico’s peso sank on Thursday and stocks fell as signs of further US labor market and manufacturing weakness fueled doubts about a quick economic recovery in the United States.  The peso extended a slide from a six month high marked on Wednesday, losing 1.04 percent.  IPC stock index closed down 2.37 percent falling from its highest levels since early October.

USD/JPY

The yen got a further boost after Bank of Japan Governor Masaaki Shirakawa said Japan’s economy is no longer in free-fall and he expects the economy to improve sharply in the second quarter, although uncertainties remain.

USD/BRL

The Brazilian real closed weaker against the dollar yesterday after optimism about green shoots following better than expected Brazilian jobless figures was offset by risk aversion in late trade. The local currency swung back and forth all day amid light volume, hitting a three month low, before it gave back gains later in the day.

USD/CAD

The Canadian dollar hit a fresh seven month high versus the US dollar on Friday, spurred by market worries about the triple-A credit ratings of the United States. Canadian bonds were slightly lower across the curve as upcoming supply concerns weigh, despite a positive tone to equity markets.

USD/KRW

The South Korean won erased most of its earlier gains to end local trade steady on Friday on lingering caution over potential intervention by the authorities and on weaker local stocks. The wariness of possible purchases by the authorities was expected to damp demand for the won amid worries about the rising US deficit.

USD/CNY

The yuan climbed to its highest level on the dollar in eight months in benchmark offshore NDF’s on Friday, the third time this month, after the US currency tumbled on global markets. Underscoring rising expectations of yuan appreciation, benchmark one year offshore volatilities rose to 5.10 after trading at 4.70 percent on Thursday.

USD/INR

The Indian rupee trimmed gains after strengthening to a five month high on Friday, but sentiment was upbeat following the US unit’s weakness overseas and expectations for a jump in foreign flows.  Gains this week rose to more than 5 percent at the day’s high after the Congress led coalition won a second term in office and raised expectation for economic reforms and liberal foreign investment rules. Foreigners have bought $3 billion of local equities so far this month, including $1 billion since the election results.