Forex Market Update: Yen Falls as GSE Bailout Fuels Risk Appetite

[DailyFx]

The news of the Freddie Mac-Fannie Mae bail-out on the weekend was the dominant factor for the Asian currency markets on Monday with the USD gapping sharply lower on Monday morning with the exception of the JPY.



Economic Events 09/08/2008

05:00 GMT - Commodities are mixed in Asia today with copper prices down 2.5% in Shanghai today as worries over China's growth mount, that sent China stocks to 20-month lows. Gold prices rose 1.4% according to Reuters with gains reflecting the overall decline in the USD in the wake of the GSE bail-out. Oil did rise, but analysts were contributing that gain mainly to Hurricane Ike rather than the USD or gold move with oil prices rising above $108.00 a barrel, almost reaching $109.00. Agricultural commodities rose, but in response to the rise in oil prices.

05:48 ET - Swiss adjusted unemployment remained at just 2.5% in August, while the unadjusted rate rose to 2.4% from 2.3%, both in line with market expectations. Data highlights the continued tightness of the Swiss labor market and suggests that the growth slowdown, both domestically and globally, has not yet had a visible impact on unemployment. We expect to see higher unemployment figures later in the year, however, with employment lagging growth, as Swiss economic activity continues to cool.

06:48 GMT - Bund futures are sharply lower in early trade, after yesterday's announcement that the U.S. government is stepping in to take control over Fannie and Freddie, which is supporting stock market and reviving growth expectations. As of 6:45 the December 10-year Bund future is down 88 ticks at 114.49. The 10-year Bund yield is up 10 bp at 4.096% and the 2-year yield is up 12 ticks at 4.080%. In the money markets the December 3-months Euribor future is down 0.015 and back months futures are down as much as 0.180 in the June 11 contract.

07:06 GMT - Gilts fell sharply in opening trade, in line with overnight Treasuries after the U.S. Treasury's GSE Bail-out. The 10-year December Gilt future is down 87 ticks to 111.8. The 2-year cash yield up 9 bp to 4.42% and the 10-year yield is up 10 bp to 4.48%. FTSE 100 opened 2.5% higher.



Forex Market Highlights

The news of the Freddie Mac-Fannie Mae bail-out on the weekend was the dominant factor for the Asian currency markets on Monday with the USD gapping sharply lower on Monday morning with the exception of the JPY. JPY weakened as the GSE news fueled renewed risk appetite as Asian stock markets rallied over 3-4% in some instances, helping to underpin JPY carry trades. Asian currencies such as the KRW and SGD all rallied on risk appetite but also on the view that the GSE bail-out will help the asset holdings of Asian central banks, highlighted in the International Herald Tribune. Finally of note, was the failure of China's stocks to rally on the news, instead falling to a 20-month low as fears over China's growth continue, which may bode poorly in the future for regional demand and currencies, and still hamper commodity performance. Gold rallied on the weaker USD but oil gains, up about $2, were mostly attributed to Hurricane Ike.