US Dollar Nears 4 Yr High Against the Yen on Strong Carry Trade Demand (page 2 of 2)

Inflationary pressures continue to remain soft despite the central bank's plans to continue normalizing interest rates. Another quarter point hike is expected in the first quarter from the Swiss National Bank as well.

British Pound

The British pound continues to outperform all other major currencies in the market as it climbs to a fresh year to date high against the US dollar and a new two year high against the Euro. Economic data remains very firm. Last week slower housing market data suggested the potential for a top in the housing market. This concern was alleviated Sunday night when online property search website Rightmove reported a 0.5 percent jump in house prices during the month of January. The market still expects the Bank of England to raise rates again this quarter. The minutes from the monetary policy meeting held earlier this month is due for release on Wednesday. The BoE delivered their surprise interest rate hike at that meeting and the balance of votes or whether the decision was unanimous will be especially important in determining how soon the next rate hike will come.

Japanese Yen

Demand for carry trades continued to send the Japanese Yen lower against the high yielders. New milestones have been made as the Yen marks a fresh nine year low against the British pound and Australian dollar, three year low against the US dollar and one year low against the New Zealand dollar. Relatively optimistic comments about growth from the Finance Ministry have failed to help the currency as domestic demand remains weak. Consumer prices are expected later this week and given the BoJ's decision, consumer price growth should have been muted. If CPI surprised to the upside, it would question the credibility of the central bank and lead traders to wonder if they fell victim to political pressure once again.

Commodity Currencies (CAD, AUD, NZD)

The commodity currencies were the big movers of day. Both the Canadian and Australian dollars dropped after the London close as commodity prices reversed their earlier strength. The weakness of the CAD was exacerbated by the courts' approval of a $2.5 billion settlement between Canadian based Nortel and its investors. Nortel will be making approximately 25 percent of that payment in cash and a lot of that settlement is expected to flow to investors in the US. The soft growth in producer prices reported overnight suggests that consumer price growth could have been tame in the fourth quarter as well. The market is still looking for another rate hike by the RBA and will need the CPI data to verify that possibility. Meanwhile the New Zealand dollar was the only commodity currency to rally against the greenback today. There was no economic data released but the issuance of a number of Uridashi bonds this week has helped to spur strong demand for the high yielding currency.