Daily Insight

The negative sentiment surrounding the Dollar has seen the U.S currency plummet to fresh multi-year lows against all of the 16 most actively traded currencies as the Federal Reserve continue to lower interest rates to provide some relief to the ailing U.S economy.

Nevertheless, the Dollar stemmed any further losses against the majors yesterday as the focus of attention switched to the volatility in the stock market amid reports that Citigroup had received a cash injection of $7.5 billion in the hope of stabilizing the Bank following another round of redundancies earlier this week.

In terms of economic data, the Dollar also stood firm amid reports that U.S consumer confidence fell by more than initial forecasts in November as surging fuel costs and falling home values damage sentiment.

The index of confidence fell to a reading of 87.3 this month, the lowest level since the months that followed Hurricane Katrina in 2005 while home values decreased 4.5% year-on-year in the third quarter.

The gloomy outlook for the U.S economy has Fed policy makers severely cut growth forecasts as the worsening housing slump begins to weigh on consumer spending.

The report yesterday will only increase speculation that the Fed's Open Market Committee may continue monetary easing on the 11th December.

The European Central Bank have adopted a staunchly hawkish stance on monetary policy in recent months and that has seen the Euro rally to the highest level ever recorded against the Dollar and to a four-year high versus the Pound.

Despite mounting political pressure and market criticism, the ECB have chosen to focus almost exclusively on the impact of rising inflationary pressures, particularly with the price oil soaring to within a whisker of $100 a barrel.

However, following an increase in production in Saudi Arabia, oil prices fell $2 throughout the course of yesterday while German business confidence declined to the lowest level in almost two years.

The Ifo sentiment index slipped to a reading of 103.3 this month, the lowest level since January 2006, and as a result, the Euro fell against both the Pound and the Dollar by the close of trading last night.

Considering the fundamental lack of UK economic data released this week, the Pound is largely driven by risk appetite and the tone of U.S economic reports as the market looks for further direction on UK monetary policy.

The Bank of England have so far been reluctant to comment on the probability of an interest rate cut next month as mounting inflationary concerns may keep the Central from lowering rates until the first quarter of next year.

The tone of the minutes from the Bank's last policy meeting and the language used in the quarterly inflation report seemed to indicate that policy makers would need to lower borrowing costs by 75 basis points over the next year in order to stabilize the economy and provide some relief to the financial sector.

Data Released 28th November

EU 09:00 M3 / 3 Month Moving Average (October)

U.S 13:30 Durable Goods Orders (October)

U.S 15:00 Existing Home Sales (October)

U.S 19:00 Fed Beige Book

written by Adam Solomon