The pound sterling posted today its biggest drop against the U.S. dollar since May 7 as the speculations that Bradford & Bingley Plc, the largest mortgage lender in U.K., will have to raise more capital, indicated a worsening in the real estate market crisis.
The currency also fell against euro and yen as the investors expected that the Bank of England will show a decline in April U.K. mortgage approvals in its report today.
Market analysts believe that the subprime crisis may get a new birth in U.K. If the housing market will post further declines in price and demand, many country’s mortgage lenders will writing down more losses.
The pound has already lost 0.9 percent to the U.S. dollar this year and 7 percent to euro, as the United Kingdom was hit hardly by the deepening housing slump, meanwhile BoE has proved that it can cut the interest rates in such situation.
GBP/USD dropped from 1.9767 to 1.9623 as of 9:17 GMT today, reaching its daily low near 1.9595. EUR/GBP rose from 0.7871 to 0.7923 and GBP/JPY went down from 208.07 to 205.76.
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The Australian currency dropped today on Forex as the government bonds rose after the report on the April retail sales showed a decline of this important indicator.
The retail sales in Australia slid down 0.2 percent in April, forming a steady downward monthly trend for the growth macroeconomical indicator. A decline in retail sales is now attributed to the extremely tight monetary policy in Australia, spurring belief that the record high interest rate (7.25 percent) will be probably lowered soon.
While expectation for the Australia’s interest rates are directed down, the U.S. dollar may gain from the rate increase in the medium-term perspective. The end of the RBA’s increasing cycle will be a strong reason for many traders to start selling the Australian dollar.
AUD/USD declined today from 0.9546 to 0.9521 as of 8:21 GMT with a daily minimum at 0.9501. AUD/JPY dropped to 99.84 from its open price at 100.48; the daily low for this currency pair was at 99.76.
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Today the U.S. dollar continued to head for its second monthly gain against such currencies as the euro and the Japanese yen as the country’s economical situation showed some improvement over the recent weeks.
Saudi Arabia’s Finance Minister Ibrahim Al-Assaf agreed with the U.S. Treasury Secretary Henry Paulson that the riyal’s peg to dollar is serving good to the country’s economy and assured him that Saudi Arabia has no plans to unlink the currency.
During his four-day visit to the Middle East Paulson was to convince the regional financial officials to abstain from depegging their currencies from dollar and to increase the oil output in order to cut the energy cost growth. Keeping dollar pegs is very important to the U.S. currency as it’s one of the few factors that keep dollar up now.
Middle Eastern countries tie their national currencies’ rate to dollar and also have to maintain similar refinancing rates. This practice protects them from the significant Forex risks, while their foreign reserves are filled mainly with the dollar revenue.
Depegging the local currencies from the U.S. dollar would allow for a more flexible inflation control, which is especially needed now, when consumer prices accelerated to their record maximums in the region. Kuwait was the first and the only Gulf country to drop the peg to dollar in May 2007. Since then Kuwaiti dinar gained about 8 percent against dollar.
Another reason for Gulf countries to keep the peg for now is their plan to establish a currency union by the end of 2010, which would involve a unified currency. A peg to dollar may help in making such transition more smoother.
Some of the Middle Eastern monetary officials expressed their opinion that the time to rethink the peg had already came, but the lack of the political will and some clear advantages of keeping the peg still prevents Saudi Arabia, U.A.E., Bahrain and Qatar to step aside from the U.S. dollar.
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Today the U.S. dollar continued to head for its second monthly gain against such currencies as the euro and the Japanese yen as the country’s economical situation showed some improvement over the recent weeks.
The second month of growth against the yen can be attributed to both carry trade uprise that has been seen during the last weeks on Forex and the expectations for the Federal Reserve to rise rates early next year if not sooner.
This month dollar gained slightly less than the previous month against euro and yen, but it also rose against the Great Britain pound as the housing crisis went worse in U.K. Even carry trade positions failed to support GBP/USD pair.
Eurozone posted some not so good economic indicators this month, but at the same time consumer inflation has been rising too. As the ECB is facing a hard decision choice, U.S. dollar can gain from somewhat more definite position of the Fed.
EUR/USD fell this month from 1.5618 to 1.5539, while the currency pair is slightly growing today after moderate U.S. statistics releases. USD/jPY rose this month from 103.95 to 105.44 and today the currency pair is going dow slightly for the same reason that makes EUR/USD to go up now.
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