Daily Insight

The overwhelming decline of the Dollar continued yesterday as the U.S currency plummeted to the lowest level on record against the Euro while also trading up through 2.0500 versus the Pound amid speculation that a slowing economy will see the Fed lower interest rates at the end of the month.

The Dollar is poised to record its third consecutive weekly decline against the Euro following an unexpectedly weak report on U.S durable goods orders.

The report from the Commerce Department showed that orders for items made to last several years fell 1.7% in September as a slump in military equipment off set the increase in business investment.

Nevertheless, a weak Dollar and rising overseas demand will see U.S exports rocket higher, helping to prevent the housing recession from slowing the broader economy.

Elsewhere, a separate report on the U.S housing market showed that the index of new home sales actually rose 4.8% in September following a strong revision in the August figures.

However, there was minimal reaction in the market as speculation on U.S interest rates continues to drive Dollar weakness and we may see further losses today ahead of a report on consumer sentiment in the Michigan region.

The Euro made strong gains against the Pound yesterday and also traded up through the previous record high versus the Dollar despite a report on German business confidence, which dropped to the lowest level in nearly two years.

The Ifo sentiment index fell to a reading of 103.9 from 104.2 in September after the Euro's advance to a record level combined with rising oil prices threatened to curb economic expansion.

The price of oil rose above $92 a barrel last night and we have seen an incredible 74% jump in prices in under a year while higher credit costs sparked by defaults in U.S subprime mortgages may slow the European economy.

Nevertheless, import prices in Germany have accelerated more than initial forecasts in September, rising 0.6% from the previous month led by the increase in fuel costs.

The report will only serve to heighten suggestions that the European Central Bank will keep interest rates steady at 4.0% while retaining a tightening bias.

Rising oil prices will inevitably raise inflationary pressures and with consumer prices rising above the 2.0% ceiling for the first time in well over a year, the ECB will be ever more concerned with the risks to price stability.

Data Released 26th October

EU 09:00 M3 (September)

- 3 month moving average

U.S 15:00 Michigan Sentiment (October Final)

written by Adam Solomon