Euro Struggles to Stay Above 1.48 (page 2 of 2)

Meanwhile the Swiss franc ends the week on a strong note. The ZEW survey is the only piece of economic data expected from Switzerland next week.

British Pound: Don't Expect 2008 to be a Good Year

The British pound was the worst performing currency this week, having fallen to a record low against the Euro, a 3 year low against the Swiss franc and a 1.5 year low against the Japanese Yen. Even though the British pound has only fallen to a 9 month low against the US dollar, the fact that it has weakened against a currency whose outlook is just as dismal indicates how bearish investors are on the UK economy. Having missed an opportunity to be ahead of the curve by cutting interest rates on Thursday, the Bank of England will have a tough battle ahead of them because 2008 will not be a good year for the British pound. Next week, producer and consumer prices are due for release along with labor market numbers and retail sales which means that it will be another volatile week for the beleaguered currency.

Canada on a Very Different Path from Australia and New Zealand

The Canadian economy is on a very different path from Australia and New Zealand. Over the past week, Australian economic data continued to surprise to the upside, confirming the strength of the Australian economy. Canada on the other hand has reported nothing but disappointments. Last month, the country lost 18k jobs, the most since 2003. This year, we expect the Bank of Canada to cut interest rates by at least another 50bp. Australia and New Zealand on the other hand will probably leave rates unchanged. Next week the focus will turn to Australia and New Zealand with Australian employment numbers, New Zealand consumer prices and retail sales due for release.

Dow Erases Weekly Gains Triggering Sharp Carry Trade Liquidation

The 246 point drop in the Dow today erased all of this week's gains in both US equities and carry trades. With no major news other than Merrill Lynch's write down, a wave of risk aversion has swept through the financial markets. Despite a relatively busy Japanese economic calendar next week that includes machine orders, CGPI and the current account, the fate of the Yen crosses will largely depend on the outlook for the Dow. As long as the problems related to the subprime crisis are not behind us, it will be difficult for carry trades to return to their glory days.