British Pound - Hit by Blowup in US Sub-Prime Lending (page 2 of 2)

The fear that HSBC will struggle to recover from this has sent the company's shares down to an 8 month low. However the blowup in the sub prime market has even greater significance. We are sure that HSBC, who is the world's third largest bank, is not the only ones to suffer from the growing delinquencies in the US sub-prime lending market. If this problem exacerbates, it may be the first sign that the US economy is in trouble. The UK trade balance is due for release tomorrow and the strong level of the pound could push the deficit higher.

Japanese Yen
Comments from Bank of Japan member Haru sent the Japanese Yen tumbling today. Haru reiterated the importance of keeping a loose monetary policy and touted the benefits of a weak yen for the economy. The takeaway message from his comments is that they will press hard to defend the recent weakness in their currency and will probably not waiver in the face of European pressure. Furthermore, it is unlikely that they will raise rates until April or June. Nikkei news speculated that weak economic data will prevent the central bank from tightening policy. The BoJ has long said that they need to see improvements in consumer demand and inflation before raising interest rates again. The G7 meeting will be the market's main focus tomorrow. Even though no official criticism is expected, there could be some position squaring of yen shorts ahead of the meeting.

Commodity Currencies (CAD, AUD, NZD)
Big moves were seen in the commodity currencies today. The Australian dollar rallied for the fifth consecutive day thanks to rising gold prices and underlying strength in last night's employment numbers. The strength was most pronounced against the New Zealand dollar which suffered from Finance Minister's Cullen's open considerations about a levy on mortgages. This is actually an extremely intelligent way of taming the housing bubble. The most common way to tame a housing market is to raise rates, but with interest rates that are already the highest amongst the developed world, the New Zealand government has no interest in spurring even more demand for their currency. A mortgage levy on the other hand not only helps to cool the housing market, but it also helps to cool the strength of the New Zealand dollar. The Canadian dollar on the other hand saw a nice intraday reversal as oil prices continued to climb. Canadian employment numbers are due for release tonight and a strong print could exacerbate the turn in USD/CAD.