Currency Market Review

The movement of the major global currencies versus US Dollar (USD) continued to be highly volatile in the month of January 2009. The currency market trends were largely determined by the publication of key economic data and the interest rate cuts announced by the major central banks across the regions.

In January 2009, USD witnessed mixed trading vis-à-vis other major currencies. While it gained vis-à-vis Euro and the Swiss Franc, it registered a decline against Yen. The USD started the month on a positive note against major currencies, after comments by US President Barack Obama supporting an economic stimulus plan for the US worth $775 billion stretched over next 2 years. However, USD fell against GBP in the second week of the month triggered by report from US Department of Labor that showed job losses of 577,000 in December 2008, the highest for any one month since it started keeping records in 2001. A report by the Labour Department published on 8 January 2009, showing that the total number of individuals receiving unemployment benefits jumped to 4.6 million in the week ended 27 December 2008, the highest since 1982, also intensified the initial fall in the USD.

The positive movement of the USD against Euro in the month was largely due to publication of weak economic data for Eurozone and 50 basis point interest rate cut by the European Central Bank (ECB) in the second week of the month. On 2 January 2009, Markit Economics reported that its Purchasing Managers Index (PMI) for the Eurozone manufacturing sector dropped to 33.9 in December from 35.6 in November, the lowest since 1998 (the year when survey started). On 30 January 2009, Eurostat reported that Eurozone inflation fell to 1.1% in January 2009 from 1.6% in December 2008, while the unemployment rate for the region marginally climbed to 8% in December 2008 from 7.9% recorded in November 2008. The poor economic data led to the negative movement of Euro against the USD.

The British Pound (GBP) traded in a volatile manner against USD in January and showed some positive trend in the second week of the month but lost ground by the fourth week, on concerns that the UK economy may be entering into a deep recession. However, it traded positively against Euro during the month. The movement of GBP against other major currencies was influenced by release of dismal economic data and the interest rate cut of 0.5% (to 1.5%) by the Bank of England (BOE) in the first week of January. The GBP fell by the fourth week of the month versus USD with the Office for National Statistics reporting on 23 January 2009 that UK gross domestic product (GDP) for the fourth quarter had contracted by about 1.5% from the previous quarter, following the 0.6% (downwardly revised) fall earlier in the third quarter.

The Japanese Yen continued its positive movement against USD and other currencies during the month, as traders avoided risky carry trades amidst release of poor economic data in the US, UK and the Eurozone.

Philippines Peso traded strongly against USD throughout the month, while Mexican Peso traded negatively for the major part of the month, while the Chinese Yuan and INR traded flat during the month.