Morning Forex Overview

Previous session overview

On Friday, the yen tumbled to multisession lows after the U.S. government announced measures designed to stem the turmoil in financial markets.

The US dollar plunged nearly 1 percent against the euro and also fell versus most of the majors. The dollar edged higher in early Friday trading, rising above the 106-figure versus the yen and pushing the euro lower toward the 1.42-region.

The Sterling strengthened against the dollar as investors remained leery over the US financial sectors health. On Thursday, the UK Financial Services Authority imposed a four-month ban on taking new short positions or adding to existing ones in financial stocks.

The Japanese yen fell on Friday and was set for its worst one-day drop versus the dollar in over five months as steps by U.S. authorities to boost confidence in the distressed financial markets revived global appetite for risky trades.  

The Canadian dollar strengthened against the greenback as the US government announced a USD50 billion plan to boost liquidity in money markets which in turn boosted commodity prices.

Australian bond futures prices slumped Monday and the Australian dollar was higher from late in Asia Friday as the U.S. government's plan to shore up impaired bank balance sheets boosted risk appetite.

Market expectation

About pound traders note that the Asian buys took rate to recovery highs of USD1.8350/55, but move seen meeting general dollar demand which takes rate back to USD1.8335/30.

Europe finds the USD a tad lower than late Friday's levels, with the carry trades also looking a little heavy. Weekend events saw US investment giants Goldman Sachs and Morgan Stanley converted into traditional banks, which mean they are now under much tighter regulation. For Monday there is no first tier data on offer; ECB's Trichet speaks and Dallas Fed's Fisher.

About Australian dollar analysts say that a further boost in demand for riskier assets can't be assured given overall volatile markets. Indeed, much of the bond price fall and currency gain occurred in New York trading Friday with the currency unable to sustain an early peak Monday above US$0.8400.

The sustainability of the better mood, most pronounced in equities and high yield currencies, will depend on further detail of the U.S. Treasury's plan to buy US$700 billion of bad debt and whether Congress will approve the necessary legislation, analysts said.

The U.S. dollar will likely come under more pressure out of concern for the envisaged increase in public debt, but traders remain of the view that the positive impact on the U.S. macro and financial outlook will dominate, supporting a moderate U.S. dollar strengthening over the next 15 months.

The euro is up slightly against the dollar, with some importers in Japan helping to bid up the currency, a senior dealer said Monday. For broader dealing, traders say investors are waiting for more clarity in the U.S. financial rescue plan.