The dollar continued to benefit from fund demand and the unwinding of highly leveraged positions during trading yesterday, hitting a 2 year high against Euro and a 5 year high against Sterling.
Sterling has deteriorated against the USD and the Euro after comments from the Governor of the Bank of England on Wednesday morning, confirmed that the UK economy was probably entering its first recession in 16 years. It steadied overnight but with key support at $1.63 and then $1.61.34 giving way, speculation has increased that the Bank of England will take aggressive action on interest rates, in order to shore up the economy.
The Euro and Sterling remain under pressure versus the US dollar this morning, as investor sentiment stays fragile in the wake of further losses on Wall Street. European stocks are expected to fall again today following the performance of US and Asian stocks in the overnight session. The dollar broke through the $1.60 level versus Sterling overnight and is challenging short-term support at $1.5850. Sterling has also weakened against the Euro, which has broken long-term support at 1.2500 and looks to be heading lower.
According to Futures trading, The Federal Reserve Open Market Committee are expected to reduce the benchmark Federal funds rate by half a point next week to 1% (the lowest since May 2004.) If the Fed. opt to take U.S. interest rates below 1%, this action could take the focus away from the main rate, and turn the focus towards alternative measures. These measures may include increasing its holdings of mortgage bonds to lower costs for homebuyers and purchasing securities directly from the Treasury in order to pump more cash into the economy.
Banks worldwide are shelving deals and cutting jobs as the unprecedented turmoil in credit markets spreads and spurs concern the global economy may fall into a recession. Goldman Sachs Group Inc., the only firm among Wall Street’s five biggest to remain profitable through the credit crisis, have confirmed that they will shed about 3,200 workers, or 10% of its staff, as the revenue outlook worsens – These cuts add to more than 130,000 jobs eliminated in the financial industry since mid-2007.
Reports confirmed yesterday morning that Retail sales in the U.K. fell during the month of September as rising unemployment and the threat of a recession has prompted British shoppers to curb spending. French Business confidence fell to the lowest in almost 15-years as the global credit crisis worsened, threatening to deepen a likely recession in the euro region’s second-largest economy.
Persian Gulf shares declined for a second day following world markets as investors fear a global economic slump will damp profits and as falling oil prices reduce the region’s export earnings. Crude oil fell, giving up earlier gains, after Saudi Arabia failed to endorse Iran’s call for an OPEC production cut when the group meets tomorrow.
South Africa’s Rand traded near its weakest since March 2002, as commodity prices and stocks fell, stoking concern a global recession will hurt exports of precious metals and cut purchases of the nation’s assets.
Data released 24th October 2008
08.30 ITALY Consumer Confidence
08.30 ITALY Business Confidence (October)
09.00 EU-15: Flash PMI
09:00 EU-15 Manufacturing & Services (October)
09:00 U.K GDP (Q3)
11:00 IRELAND External Trade Balance (August)
15.00 UNITED STATES Existing Home Sales (September)
- TorFX – Market update 22nd October 2008
- The Dollar continues to decline against the majors as the market factors in a good chance of a rate cut in October
- The Pound rallies against the majors despite speculation of an October interest rate cut
- The Dollar advanced under 1.9000 against the Pound as U.S unemployment unexpectedly shrank to 4.4% in October
- Market conditions and sentiment are still fragile