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Weekly Analysis

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Renewed of Selling Pressure on the Dollar

Tue, Nov 25 2008, 08:10 GMT
by Benny Menashe

Finotec Group Inc.

The US dollar fell against the majors as global equities pushed higher overnight. Futures on the Chicago Board of Trade show 18 percent odds policy makers will lower the 1 percent target rate for overnight lending between banks to 0.25 percent at their next meeting on Dec. 16, compared with zero odds a week ago. The rate was reduced by a percentage point in October.

Citigroup, once the biggest U.S. bank by market value, will have $306 billion of troubled mortgages and other assets guaranteed by the U.S. government under a federal plan to stabilize the lender after its stock fell 60 percent last week. The bank will also get a $20 billion cash infusion from the Treasury Department, adding to the $25 billion the bank received last month under the Troubled Asset Relief Program.
On the unemployment front, President Bush announced new legislation today to extend unemployment insurance benefits nationwide. We have to keep an eye on the unemployment claims on Wednesday 26 November in order to find out the various possibilities to U.S. dollar direction.

The euro rose against both the dollar and yen despite the fact that data released showing that the European service and manufacturing sectors contracted in November. The flash purchasing managers' indices fell to 43.3 to a record low and below expectations for a reading of 45.2. The news could increase the pace at which the European Central Bank (ECB) will cut interest rates as there is a growing consensus that the ECB may cut rates by as much as 75 basis points at its next meeting on December 4.

The British pound strengthened across the board after European stock markets rose. Minutes released from the Bank of England stated that at its last policy meeting there was some talk of an even more aggressive rate cut by over 150 basis points. Look for the pound’s rally to remain short lived as the market expects further rate cuts form the Bank of England this year with a 100 basis point cut as early as December.

Today's Economic Events

Published on  Tue, Nov 25 2008, 08:12 GMT