Euro hits Record High of 1.3835 (page 2 of 2)

This stance is supported by further slowing in average wage growth in May. Even though the number of people claiming unemployment benefits decreased, weaker wage growth could still hurt retail sales.

Euro hits record high of 1.3835

We have long said that the direction of monetary policy is far more important than the level of interest rates and today, the move in the EUR/USD is a testament to that. The currency pair climbed to a new record high of 1.3835 following less hawkish comments from the US central bank.

In an environment where the European Central Bank (ECB) is pounding the table about the need to raise rates, the growing chance of a rate cut before a rate hike in the US is driving the dollar lower. One would expect that the ECB would begin backing off given the recent appreciation in its currency, but instead of showing any signs of concern, ECB president Jean-Claude Trichet warned today about that any attempts to influence the ECB would be in violation of the EU treaty.

This suggests that it is not willing to talk down the euro and will only do so under its own terms. ECB council member Nicholas Garganas also said yesterday that he expects the central bank to raise rates further.

Commodity currencies hit fresh highs on dollar weakness

Dollar weakness has sent the commodity currencies skyrocketing to new multi-decade highs, which have become a near daily occurrence for the Canadian, Australian and New Zealand dollars.

Gold and oil prices are up on the day which is helping, but most of the strength is coming from US dollar weakness since the data released from the three countries were actually bearish.

Canadian consumer prices fell in June, leaving annualised consumer prices at 2.2 per cent while core prices remained flat. Meanwhile Australian leading indicators weakened in May, there was no economic data released from New Zealand. The outlook for the currencies will continue to predominantly dependent upon US data.

Only Canada has the potential to move on its own accord with wholesale sales and international securities transactions due for release.

Carry traders haven't given up

Carry traders aren't quite ready to give up yet. Despite the Dow having been down over 100 points intraday, the highest yielding carry trade currencies still managed to end the day in positive territory.

The Dow also recuperated half of its losses which suggests that the rally could go on. The only currencies that the Japanese yen managed to rally against were the euro, Swiss franc, US and Canadian dollars and for the most part, the damage was small. Looking ahead, we expect carry trades to continue to track the Dow.