Japanese Yen Continues to Outperform All of the Majors (page 2 of 2)

Finance Minister Omi said last night that the worst of the home loan crisis may be over.

Sharp losses continue for the Australian, New Zealand and Canadian dollars

Next to the Japanese yen crosses, the biggest losers were the Australian, New Zealand and Canadian dollars. More Australian hedge funds are being hit by the US sub-prime crisis. Basis Capital told investors today that one of its hedge funds have lost over 80 per cent of its value.

As of March, the fund had a $1bn in holdings, which means that now they probably now have less than $200m. More skeletons will probably becoming out of the closet as the hedge funds in Australia prove to be up to their necks in risk.

The New Zealand dollar is tracking the Australian dollar lower, having sold off aggressively for the past five trading days.

The Canadian dollar also continued lower on the back of continued weakness in economic data. We could see a bounce in the Canadian dollar however, after Coventree announced that it had found buyers for its asset backed commercial paper, which suggests that it may lift its funding freeze. The Bank of Canada also injected further liquidity to calm the markets.

British pound slips as Bank of England moves further away from raising rates

The British pound dropped for the third straight day in a row, after the minutes from the latest Bank of England (BoE) meeting revealed a unanimous vote to keep interest rates unchanged.

According to the minutes, 'Most members emphasised that they had no firm view on whether rates needed to rise further'. Rate hike expectations have already been downgraded after the surprisingly soft consumer price report released yesterday.

The lack of support for a rate hike at the last meeting pushes the central bank even further away from raising interest rates to six per cent by the end of the year. Do not be mistaken however as the market has not given up on hope for another rate hike, especially after Bank of England member Andrew Sentence stressed that one consumer price report will not mean much to the BoE.

Meanwhile, UK employment data was slightly worse than expected with average earnings including bonuses declining in the month of June and jobless claims falling less than expected.

Dollar rally takes euro to fresh monthly lows

The flight to safety continues to drive the US dollar higher against the euro. Over the past five trading days, the euro has fallen close to 400 points.

It appears that the European Central Bank's (ECB) attempts to calm the markets have done little to ease market fears as bad news continues to hit the headlines. Yesterday, ECB President Jean-Claude Trichet said that conditions are normalising, which explains why it did not inject liquidity into the financial markets this morning. If another piece of bad news hits the wires tomorrow, it may have to add more liquidity.