Headlines: Dollar dropped to five weeks low after weak U.S. economic data
Main news:
- BOJ kept interest rate unchanged, signaled increase in coming months
- OPEC will cut 1.2 million barrels output today
Forex outlook:
The dollar dropped to the lowest in five weeks against the euro and yen after softer-than-expected October economic data showed some doubt about U.S. growth potential. The dollar fell to $1.2764 per euro from $1.2725. It touched $1.2782, the weakest since $1.2819 on Sept. 25. The U.S. currency also declined to 116.94 yen from 117.49. It reached 116.63, the lowest since 116.26 on Sept. 26. The Conference Board's index of U.S. consumer sentiment declined to 105.4 in October from a revised 105.9 a month earlier against consensus forecast of 108.0. The data added evidence to the slowdown in the world's largest economy, lifting speculation the Federal Reserve may cut borrowing costs early next year, dimming the appeal of dollar- denominated assets. The U.S. currency declined last week after the economy expanded at the slowest pace in more than three years. The National Association of Purchasing Management-Chicago said its business index dropped to 53.5 this month from 62.1 in September against consensus forecast of 58.
The yen will appreciate as central banks join the Swiss National Bank in raising their holdings of the currency to take advantage of its lower value and prospects for higher Japanese interest rates, said ABN Amro Holding NV. The yen may also benefit after a twice-yearly report signaled the Bank of Japan may raise interest rates in coming months. BOJ Governor Toshihiko Fukui has said he can't rule out another increase this year because holding borrowing costs too low may fuel excessive investment.
Central banks in Norway and the euro zone will hold policy meetings on Wednesday and Thursday, respectively, with the market expecting hawkish outcomes from both. As today, the U.S. ISM manufacturing index is expected to be released, which the Fed keeps a close watch on this report that helps it to determine the direction of interest rates when inflation signals are flashing in these data. Federal Reserve Chairman Ben Bernanke will give a keynote address at the annual Opportunity Finance Network Conference, in Washington today. Investors may look for clues on how he plans to adjust interest rates at the next Federal Reserve meeting.
Gold: Gold futures fell 60 cents to $606.80 an ounce after the dollar fell on news of a sharp fall in the Chicago PMI data, which analysts said reinforced the recent trend of much slower economic growth. Earlier crude oil prices declined on Tuesday also is the factor that put the gold down.
Crude Oil: Crude oil rose 0.6 percent to $58.73 a barrel on Tuesday. It touched $57.05 earlier, the lowest since Oct. U.S. crude-oil supplies probably rose 2.6 million barrels last week, according to the forecast before the Energy Department report today. OPEC Secretary General Mohammed Barkindo said the group may agree to a further cut in oil output next year. OPEC decided on Oct. 20 to cut output by 1.2 million barrels a day, starting today. The Organization of Petroleum Exporting Countries will review production again at a meeting Dec. 14 in Abuja, Nigeria.
