US Dollar: Outlook is Grim but a Recovery Could be Swift (page 2 of 2)

Meanwhile Swiss economic data was mixed. Second quarter employment was stronger but the ZEW survey of analyst sentiment deteriorated. The Swiss franc has slipped, but that is partly due to the rebound in carry.

Bank of Japan Leaves Rates Unchanged, But Plan on Normalizing Rates in Months to Come

The Japanese Yen crosses are all up strongly today following the Bank of Japan's decision to leave interest rates unchanged. Comments from Governor Fukui suggest that the only thing holding the central bank back from raising rates is the problems in the global financial markets. They still feel that it is wrong to keep interest rates at such low levels. In the words of Fukui, "distortions and the misallocation of resources could occur if interest rates are kept at levels inconsistent with the economy. They are not ruling out the continual normalization of interest rates even if the liquidity remains a problem globally. The market's appetite for risk will continue to drive the movement in the Yen crosses. The sharp rally in the Nikkei overnight played a big role in driving pairs like USD/JPY, GBP/JPY and AUD/JPY higher. If the Nikkei continues to rise tonight, then we can expect USD/JPY to take another stab at 117.00.

Canadian, Australian and New Zealand Dollars Continue to Rebound

The Australian, New Zealand and Canadian dollars were the best performing currencies against the Japanese Yen and US dollars today. Although they still have a long ways to go before recapturing all of the past week's losses, today's breakout points to the potential for further gains. Whether or not these currencies will continue to rise will be dependent upon the sustainability of the demand for yield. As long as no more bad news hits the wires demand could remain steady, but keep an eye out for tomorrow's US new home sales report. In the meantime, there is no Canadian or Australian data due tomorrow, but New Zealand will be reporting trade balance numbers this evening. The kiwi ended last month only slightly below where it started which means that trade should still be restrained by the high level of the currency. August however is looking very promising for exports since the currency has dropped as much as 18 percent.

British Pound Breakouts Out of Weeklong Trading Range

The British pound broke out of its weeklong trading range thanks to broad based demand for high yielding currencies and stronger economic data. Adding to the list of positive reports from the UK this wee, was second quarter business investment which rose 0.8 percent on a quarterly basis and 7.4 percent on an annualized basis. The second release of Q2 GDP is due out tomorrow.