Research Work on Foreign Exchange Rate Changes


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This research paper was completed as a class project describing what causes exchange rates to move, which began on 10/17 and ended on 10/25. The paper explained the change in currencies over 5 periods. We had to graph the indirect exchange rates (foreign currency per U.S. dollar) for the Yen, Pound and Euro and give an explanation of why each currency moved in the direction it did for the particular period.

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Research Work on Foreign Exchange Rate Changes

  1. 1. 2012 CURRENCY EXERCISE YAFEES SARWAR International Business Principles MKT 3400 [Date and Name of Professor deleted]
  2. 2. Foreign Exchange Rate Of Change (%) October 17 – 25, 2012 USD $ | EUR € | GBP £ | JPY ¥
  3. 3. Foreign Exchange Rates October 17 – 25, 2012USD $ | EUR € | GBP £ | JPY ¥
  4. 4. Japanese Yen / US Dollar10/17/12 1. The broadly weaker U.S. dollar eased back from a one-month high against the yen on Wednesday, but losses were limited after ratings agency Moodys decided not to cut Spains credit rating, supporting risk appetite. USD/JPY hit 78.62 during European morning trade, the session low; the pair subsequently consolidated at 78.75, slipping 0.16%. The pair was likely to find support at 78.62, the session low and resistance at 78.95, Tuesdays high and a one-month high.
  5. 5. 10/18/12 1. The US Dollar has gained against the Australian, Canadian, and New Zealand Dollars while dropping against the Japanese Yen following the release of the October 13 Initial Jobless Claims report,. Following the release, the USDJPY, already trading at a one- month high, fell back from 79.31 to as low as 79.22. Although the pair rebounded shortly thereafter, the USDJPY has continued to fall back (confirming the sentiment that the labor market isn‟t improving based on this print) and was trading at 79.26.10/19/12 1. The yen plumbed five-month lows on the euro and a two-month trough on the dollar on Friday as investors grew confident the Bank of Japan would ease further next week, making the yen more attractive as a funding currency for carry trades.10/22/12 1. Asian stock markets fell Monday, responding to disappointing corporate earnings out of the U.S. last week and a widening trade deficit in Japan. Disappointing results from Wall Street giants Microsoft, General Electric and McDonalds surprised traders and caused U.S. stocks to finish lower on Friday. Japans Nikkei 225 fell 0.8 percent to 8,928.49. A widening trade deficit in Japan also took a toll on markets. Exports plummeted 10 percent from a year ago, hurt by a strong Japanese yen and various economic crises in Europe, a major destination for Japanese goods. The dollar rose slightly to 79.29 yen from 79.27 yen.10/23/12 1. The U.S. dollar briefly climbed above the 80 yen line for the first time since early July in Tokyo on Tuesday morning, as yen-selling gained the upper hand on expectations that Japans central bank will ease its monetary grip. At noon, the dollar fetched 79.81-86 yen
  6. 6. compared with 79.89-99 yen in New York and 79.69-70 yen in Tokyo at 5 p.m. Monday. In early Tokyo trading, the dollar sustained the upward trend from New York, hitting the 80 yen level for the first time since July 6 and marking its highest level in three and a half months. The U.S. currency rose as high as 80.01 yen although it later settled back to the upper 79 yen level due to selling by some market players for profit, dealers said. "Expectations of easing at the Bank of Japan policy meeting on Oct. 30 are growing stronger" following a BOJ report and data on the trade deficit released the previous day, said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex& Ueda Harlow. The BOJ on Monday downgraded assessments on eight out of nine regional economies in the country, while the Finance Ministry released figures showing Japans biggest-ever trade deficit for a fiscal half-year. Japanese government officials have also been supportive of BOJ easing.10/24/12 1. The U.S. dollar held onto a small advance against major currencies on Wednesday after the Federal Reserve continued to express concern about the economy and made no changes to its ultra-easy monetary policies. Some analysts had expected more of an upgrade to the Feds economic outlook. The ICE dollar index (DXY) , which measures the greenback against a basket of six currencies, rose to 79.932, compared with 79.922 in late North American trading on Tuesday. Against the Japanese yen (USDJPY) , the dollar bought ¥79.82, little changed from ¥79.85 Tuesday. As expected, the policy-making Federal Open Market Committee made no changes to its interest-rate forecast or bond- purchase program. Officials said household spending advanced but the unemployment remains.10/25/12 1. Asian shares ended mostly higher on Thursday after US Federal Reserve stated that it will keep its loose monetary policy in place until Americas economy comes back on track. Even signs of recovery in China and the United States eased some investors worries. Hong Kong market closed higher on the back of huge inflows of cash which have pushed the local dollar to the high end of its trading band against the greenback.
  7. 7. Meanwhile, Japan Nikkei went home with green mark as Japanese automakers advancedand yen dropped to its lowest level versus the U.S. dollar in four months as investorsspeculated that the Bank of Japan will expand monetary stimulus next week.
  8. 8. British Pound / US Dollar10/17/12 1. The unemployment rate in the UK dropped from 8.1% to 7.9% in August, while no changed was expected. Jobless claims for September also exceeded expectations with a drop of 4K, while no change was predicted. .GBP/USD is climbing to 1.6150, extending gains seen earlier in the week. The drop in jobless claims (Claimant Count Change) is the third drop in a row. The previous drop of 15K was a very good surprise and was well received. The figure was now revised to a drop of 14.2K. The Average Earnings Index rose by 1.7%, a bit better than expected. In addition, meeting minutes from the latest rate decision showed that members of the Monetary Policy Committee voted unanimously for
  9. 9. no change in policy. It also provides hope that the UK is truly exiting its current recession.10/18/12 1. The British pound rallied against the greenback subsequent to the announcement of strong jobs data out of the U.K. However, its gains were limited as the Bank of England published the minutes from the recent Monetary Policy meeting. The minutes suggested that policy makers are leaning towards increasing monetary easing. 2. In the UK, the claimant count fell by a seasonally adjusted 4,000 to 1.57 million in September, compared to a 14,200 decline in the previous month, while the claimant count rate remained steady at 4.8% in September. Meanwhile, the ILO unemployment rate declined to 7.9% for three months ended August, from 8.1% for three months ended May. 3. Trading trends in the pair today are expected to be determined by the release of retail sales in the UK.10/19/12 1. On Thursday GBP/USD decreased with 120 pips. The cable depreciated from 1.6171 to 1.6039 yesterday, in converse with the positive money flow sentiment at below +17%, closing the day at 1.6041. Today the British pound weakened further, dropping to 1.6031. 2. Sterling pared a drop versus the dollar as the sales data followed figures yesterday showing jobless claims unexpectedly slid last month and payrolls increased. Gilts were little changed as the Debt Management Office sold 3.75 billion pounds ($6.05 billion) of seven-year securities. 3. The U.K. currency was little changed at $1.6135 after falling as much as 0.2 percent before the data. Retail sales including fuel gained 0.6 percent from August, when they fell 0.1 percent, the Office for National Statistics. Jobless-benefit claims dropped 4,000 to 1.57 million in September.10/22/12 1. Even though the pair mimicked the price action by EUR/USD for much of the session, the pair decoupled from its major counterpart and trended lower after what was said to be
  10. 10. good-sized options expired at 1500BST (NY cut). Attention remains firmly on the upcoming GDP report, which will likely prove to be a crucial factor for the MPC as to whether or not the APF needs to be raised in November or not. 2. The sterling also declined against the U.S. dollar as policy maker David Miles stated that the country‟s economy isn‟t recovering as well as expected. His words led to more speculation that the Bank of England may opt for further easing, despite the latest minutes which showed that policy makers are divided on whether more stimuli should be implemented to boost growth.Economists anticipate that reports to be issued on the 25th of October will reveal that Gross Domestic Product increased 0.6 percent in the third quarter. The sterling managed to recoup some of its losses after official data showed that the country‟s Budget Deficit expanded less than forecast last month.10/23/12 1. On Monday Pound/Dollar recovered slightly, increasing with almost 65 pips. The Cable appreciated from 1.5989 to 1.6053 yesterday, in line with the positive money flow sentiment at nearly -10%, closing the day at 1.6007. Today the British Pound corrected, but is moving still within yesterdays range for the time being. 2. GBPs story today has revolved around the USD and the EUR, as the Spanish issues dominated the European morning, prompting selling in the EUR and its related currencies. Despite EUR/GBPs weakness, the USD-strength has forced the pair lower, in line with HSBCs new recommendation to clients on shorting, with a target of 1.5600. Looking ahead in the pair, all eyes are on the flash estimate for Q3 GDP for the medium- term picture, and beyond that Novembers rate decision from the Bank of England.10/24/12 1. The British pound benefitted from positive data which indicated that Mortgage Approvals in the U.K. rose in September to the highest since April. According to industry figures issued by the British Bankers Association, Mortgage Approvals climbed from 30,683 to 31,175. However, the Sterling fell to the lowest in seven weeks against the U.S. dollar as market investors continued to worry over the handling of Spain‟s finances.
  11. 11. 2. The sterling plunged to the lowest in seven weeks versus the greenback as stocks fell, thereby boosting demand for refuge. 3. The GBP/USD was trading lower at 1.59474 at the time of writing on negative economic data and disappointing earnings reports. Bank of England Governor Mervyn King said the Monetary Policy Committee is ready to add to stimulus again as it assesses the strength of the domestic recovery amid signs that global economic weakness is spreading. 4. Market sentiment remains weak on the GBP. Events in the Eurozone will for sure affect market sentiments for risky assets. While, the key risk events for the pair remain the New Home Sales data, Interest Rate Decision and the FOMC Statement in the U.S. For further indication on the pair, investors should watch the CBI Industrial Trends Orders in the UK. A „wait and see‟ approach will be a good strategy.10/25/12 1. The GBP/USD rose after the UK reported their economy returned to growth in Q3. This came with a stronger-than-expected 1% rise in the GDP 2. The British pound rallied on optimism the U.K. may have fought its way out of the recession in the third quarter. This increased demand for British assets, especially as investors anticipate the country‟s GDP will show an expansion of 0.6 percent. The sterling remained supported as market investors believe the Bank of England will refrain from augmenting monetary stimulus at this time. In a speech, the bank‟s governor Mervyn King suggested that the BOE will have to think “long and hard” before it opts for an increase in monetary easing. 3. On the data front, the composite index which is based on a survey of Purchasing Managers in the Manufacturing industry showed a decline from 46.1 to 45.8 in September. Furthermore, the Confederation of British Industry‟s index of Factory Orders revealed a dramatic drop from -8 to -23.
  12. 12. EURO / US Dollar10/17/12 1. In US trade, the euro surged nearly 100 basis points against the dollar as favorable economic data, better-than-expected US corporate earnings and some positive developments out of Europe transpired to create a strong „risk on‟ thematic across global markets 2. The single currency is trading higher against the dollar after Moody‟s decided to maintain their current credit rating for Spain at Baa3, one notch above junk status.
  13. 13. 3. The ratings agency cited the following reasons for keeping its credit rating unchanged: the European Central Bank‟s bond-buying program, Spanish banking recapitalization and Madrid‟s cost-cutting scheme. Although Moodys cut Spains outlook to negative, the move was a further boost to Spanish confidence after Germany announced the opening of a precautionary credit line to Spain. The more positive news for Spain helped EUR/USD climb after $1.31.10/18/12 1. In US trade, the euro consolidated around the 1.31 level on the back of Moody‟s confirming it would not downgrade Spain to junk status and courtesy of a four-year high for US housing starts which continued the flow of funds into risk assets. 2. The immediate result was the euro surging from 1.3050 to an Asian session high of 1.3124. Overnight was the first chance for European and US traders to react to the news with the euro pushing up to a session high of 1.3040 before drifting to close US trade at 1.3119. Also supporting the increasing appetite for risk assets was a much stronger-than- expected September housing starts report which suggested they rose 15% to 872,000 annualized (far in excess of the 770,000 consensus), the fastest pace of growth since 2008. 3. With European Union leaders meeting in Brussels today and tomorrow, EUR/USD is waiting to hear what developments have made before being given a sense of direction 4. In the last couple of weeks we have not had any statements from the US Federal Reserve, and the impact of the US embarking on a third quantitative easing process has begun to recede.10/19/12 1. In US trade, the euro lost ground against the dollar as traders moved in to book some profits after the shared currency‟s strong recent run. 2. Profit taking in the euro was also supported by slightly weaker risk sentiment after US weekly jobless claims surged to a four-month high of 388,000, surpassing estimates of 365,000. Over the course of the session, the euro slid approximately 30 pips to end US trade at 1.3067 where it has remained essentially unchanged.
  14. 14. 3. Later today, the US will release their latest existing home sales numbers at 3pm (London time). There are no major economic announcements from the Eurozone today, however, and the Brussels summit will remain the focus of attention. Although there is no announcement planned, traders are hoping for one.10/22/12 1. On Friday, the euro saw some modest slippage against the dollar as weak US corporate earnings and continually slow progress in Europe led to a strong risk aversion session. 2. While early company reports suggested these concerns may have been overblown, earning reports of the last week, particularly in the technology sector, have fallen well short of expectations and confirmed a thematic of slowing growth and reduced corporate profitability. Elsewhere, the EU summit concluded with no new developments other than a reiterated commitment to have legislation governing the single supervisory mechanism in place by year-end, with implementation scheduled to occur „in due course‟ sometime in 2013. 3. The euro shed close to 50 pips over European/US trade to close the US session at 1.3024. 4. The single currency is higher against the US dollar after regional elections in Spain.10/23/12 1. In US trade, the euro experienced a rollercoaster session, eventually finishing marginally firmer as US equity markets surged back from heavy losses, bringing risk assets along for the ride. 2. The risk asset aversion from Friday looked to have set in again as the euro slid to an overnight low of 1.3012, with US corporate earnings concerns and continually slow progress in Europe remaining the dominant thematic. 3. However, the last hour of US trade saw a dramatic turnaround, with equities surging back into positive territory having bounced off some key technical support levels, (namely 1422 on the S&P – the April high). 4. EUR/USD has more than wiped out yesterday‟s gains and at 1pm (London time) was down 56 points at 1.3002.
  15. 15. 5. Traders have reacted to last night‟s downgrade by Moody‟s rating agency relating to debt in five of Spain‟s regions 6. The picture in the US presidential race is coming into focus, as we are less than three weeks away from voting. President Obama looks to be holding a slight lead, and with the third debate seeming to swing into his favor we have seen a slight undercurrent of strength in the US dollar basket.10/24/12 1. In US trade, the euro slumped against the greenback as risk aversion set in after another night of disappointing US earnings and continuing concerns over the state of the Spanish economy. 2. European and US equities, along with commodities and risk currencies, took a battering on news that Spain‟s Q3 GDP had once again contracted by 0.4%, and that the troubled nation‟s budget deficit to GDP ratio for 2012 was going to come in at 7.3% versus previous guidance of 6.3%. 3. On the earnings front, market-leading names such DuPont, United Technologies and 3M all delivered earnings reports and forward outlooks that fell short of expectations, compounding fears that the recent weakness in the global economy was filtering through to corporate profitability 4. The euro is off against the US dollar this morning as an agreement over Greek spending cuts has yet to be reached. 5. As the Greek debt crisis continues, dealers will be waiting to see any signs of an agreement over austerity.10/25/12 1. In US trade, the euro again experienced a choppy ride, but recovered most of its earlier losses to finish only modestly lower. 2. Having benefitted in Asian trade from a stronger-than-expected HSBC Chinese manufacturing print, the euro shed close to 70 pips, falling to a session low of 1.2920 3. Shortly after however, the euro spiked higher on news that Greece would get a two-year extension on the deadline to meet its budget deficit target.
  16. 16. 4. As we head into the afternoon, EUR/USD has once again drifted back towards the middle of its 1.2800-1.3100 range5. With both the US Fed and the European Central Bank having stated their commitment to further fiscal stimulation for their respective currencies, both the US dollar and the euro seem to have factored in the expected pressures of devaluation, leaving EUR/USD relatively unaffected by the announcements.6. At the same time, the US election is coming to a crescendo. In the two-weeks leading up to the vote, it seems unlikely that day-to-day governmental issues will get much attention from the markets, leaving EUR/USD likely to continue drifting.