Weekly Currency Roundup

December 09-December 13, 2007
Local FX MarketThe US dollar/BDT market was soft throughout the week, with the USD/BDT rate being range bound. However there was ample demand in the market.
Money Market
Overnight money market was increased slightly by the end of the week due to increased demand for liquidity before Eid.
International Markets:
In the beginning of the week the dollar retreated from an earlier one-month high versus the yen on Monday after a $10 billion subprime write-down by UBS fanned concerns about the health of the global financial sector. Nonetheless, the dollar remained on a relatively firm footing -- about four yen above last month's 2-1/2 year lows, after stronger than expected US jobs data on Friday dampened expectations of a 50 basis point US rate cut on Tuesday. Markets are still fully pricing in a 25 basis point easing from 4.50 percent, but chances of a bigger move have fallen to one-in-five from around 50-50 a week ago. The euro was up 0.16 percent. It got a boost last week after comments by European Central Bank President Jean-Claude Trichet last Thursday left open the possibility of higher rates next year. The dollar has recovered against other major currencies as central banks in Canada and Britain have followed the Fed in cutting rates, while a US government plan to limit potential mortgage defaults has stirred hopes that the economy's downturn will be contained.
The dollar fell versus the euro on in the middle of the week after the previous day's quarter-point rate cut from the Federal Reserve disappointed investors hoping for more aggressive action to help the economy and credit markets. The Fed trimmed both the benchmark fed funds rate and the discount rate for lending to banks by a quarter point, to 4.25 and 4.75 percent respectively. Some had expected a bigger discount rate slash to help strained money markets at year-end. However, the US currency rallied versus the yen, while high yielders surged after a Fed source said the central bank was actively considering all of the tools it has available to address liquidity measures. The euro rose 0.3 percent, while sterling added 0.5 percent gains the USD.
By the end of the week the yen recovered from 1-month low versus the US dollar and the euro on Thursday as initial confidence from liquidity boosting steps by the Federal Reserve and other major central banks proved short-lived. Investor's saw Wednesday's announcement as a sign that central banks are committed to supporting financial firms struggling to secure funds for hard-hit balance sheets before year-end. This hit safe-heaven assets like the low yielding yen and boosted high-yielding currencies like the New Zealand dollar.
-- Standard Chartered Bank