Currency Market Review

The weakening of the hurricane, Gustav and the Commerce Department's report that stated about the 1.3% gain in factory orders in July 2008, led to the strengthening of the US dollar in early September. Substantial gains in equities markets encouraging investors to purchase higher-yielding currencies in deals, financed by low-yielding currencies such as the yen and the Swiss franc also contributed to the appreciation of the US dollar in the first half of the month. The US dollar weakened during the later half of the month due to lower retail sales, a 6.2% decline in the US housing starts and an 8.9% fall in the new building permits in August 2008. Also, the announcement of US Treasury Department's plans to use up to $50 billion from the Exchange Stabilization Fund to insure money-market fund holdings, led to the depreciation of US dollar. The government's plan of a $700 billion bailout package led to the weakness of the USD against pound and euro.

The pound weakened as data showed a reduction in manufacturing in the UK and a fall in mortgage approvals. Prime Minster Gordon Brown proposed spending of £1 billion to support the housing market. The government also announced a one-year suspension of stamp duty on UK homes that cost less than £175,000. The bailout of Bradford & Bingley, a mortgage lender, by the receiving countries traded weaker throughout the month, except for Chinese Yuan that was stable in September 2008. The UK treasury and a decline in the UK mortgage approvals to 32,000 loans in August 2008, added to the pound's decline.

The Euro fell against the US dollar in early September, as business investment in the Eurozone dropped 1.2%, while retail sales and household spending dropped 0.4% and 0.2% in July 2008, respectively. The Euro also declined after ECB President Jean- Claude Trichet characterised Eurozone economic activity as “weak” and cut this year's growth forecast for the region to 1.4% from 1.8% and lowered its 2009 forecast from 1.5% to 1.2%. The bailout of the Belgian bank, Fortis, by Belgium, the Netherlands and Luxembourg, $9.2 billion bailout of Belgian-French bank, Dexia, by France and Belgium, and a €35 billion loan guarantee to commercial-property lender Hypo Real Estate led to the weakening of euro against the US dollar.

The Japanese yen strengthened against the US dollar on a retreat from carry trades, a higher US unemployment rate of 6.1% in August 2008, and amid concerns that the conflict between Georgia and Russia could worsen. Also, the bankruptcy of Lehman Brothers and the financial turmoil of US insurer, American International Group (AIG) helped the appreciation of the yen and Swiss franc.

The currencies of major remittance US dollar gained more against currencies such as the Indian Rupee and Mexico Peso, compared to Philippines Peso in Sep’2008.