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Daily FX Commentary

Wed, Oct 15 2008, 12:48 GMT

Investica Ltd


US economy stumbles

There was a small decline in dollar Libor rates on Tuesday, but three-month rate was still at highly elevated levels near 4.50%. More positively, there was a decline in the two-year yield spread over Treasuries to the lowest level for three weeks which suggests some improvement in confidence. There should be a further improvement in credit spreads and lower Libor rates over the next few days and this narrowing should lessen underlying dollar demand, although unease will persist.

The US economic data recorded a fresh decline in consumer confidence for September on Tuesday while the Wednesday releases were notably weak. Retail sales fell by 1.2% in September with a core 0.6% decline while the New York manufacturing index fell sharply to -24.6 from -7.4 previously. The data will reinforce economic fears and maintain pressure for lower interest rates

The comments from Fed Chairman Bernanke will also be monitored very closely on Wednesday for any hints over interest rates. Two non-voting FOMC members Bullen and Yellen were cautious over the merits of further interest rate cuts in comments on Tuesday.


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Investica Ltd http://www.investica.co.uk | tim.clayton@investica.co.uk

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Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

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