The JPY weakened versus all of its most−traded counterparts

Market Review – Fundamental Perspective

The JPY weakened versus all of its most-traded counterparts as political wrangling over the fate of Japan’s Prime Minister Yukio Hatoyama damped the allure of the JPY as a safe-haven. The Prime Minister met late with Ichiro Ozawa yesterday, the party’s No. 2 official and architect of its 2009 election victory, to discuss his future. The GBP rose to the strongest level in 18 months versus the EUR after reports showed that U.K.’s house prices had their biggest annual gain in more than 2 ½ years in April and manufacturing stayed at the strongest level in more than 15 years last month. Also the GBP/USD climbed yesterday on bets that Prudential Plc.’s $35.5 bln takeover of American International Group Inc.’s main Asian unit may fail, easing concern the accord will prompt outflows of the GBP. The U.S. ISM manufacturing index grew in May at a faster pace than forecasted as factories added workers to meet the greatest export demand in two decades as well as a revival in domestic orders. The EUR/USD fell to 1.2111 yesterday to its lowest level from 1.2306 at its opening. It was the lowest level since more than four years.

The Bank of Canada raised its target rate for overnight loans between banks by 25bps to 0.50, the first Group of Seven country which increased rates since last year’s global recession. Nevertheless the CAD declined on June 1st against 13 of its 16 most-traded counterparts as the central bank said after its rate decision that the move today will be “weighed carefully” against growth in Canada and elsewhere, sowing uncertainty over the pace of further raises.

The AUD/NZD fell to the lowest level in a week as traders bet New Zealand’s central bank will increase the benchmark rate from a record low this month. The AUD/USD recovered after three days of decline on concern that a report may show that the nation’s economy expanded in the first quarter of 2010.