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Daily Analysis

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Daily Analysis

Mon, Jul 7 2008, 13:54 GMT
by Benny Menashe

Finotec Group Inc.

The pound fell against the dollar after a government report showed U.K. manufacturing contracted more than forecast in May, heightening concern the economy will tip into a recession. The U.K. currency also slipped against the euro, extending three weeks of declines, as investors reduced bets the Bank of England will boost interest rates when they meet July 10. ``The U.K. data has been pretty bad and more and more people are talking about a possible recession,'' said Martin McMahon, a currency strategist in Zurich at Credit Suisse Group, Switzerland's second-largest bank. ``There aren't many positives for the pound out there.'' The pound slipped 0.6 percent and is trading at $1.9685 as of 10:35 am, GMT, from $1.9823 on July 4. It was down 0.1 percent and trading at79.99 pence per euro as of 10:37 am, GMT.

The euro fell to the lowest level in more than a week against the dollar as a central bank report showed German industrial production unexpectedly declined in May for a third month. The common currency weakened as traders pared bets the European Central Bank will raise interest rates a second time this year and investors speculated the Group of Eight nations will signal they favor a stronger dollar. The dollar also rose to the highest level in more than a week versus the yen as U.S. President George W. Bush said yesterday, on the first day of his five-day trip to Japan, his administration will continue to pursue a strong dollar. EUR/USD trading at $1.5666 as 10:58 am, GMT.

The yen weakened for a third day against the dollar as a rally in Asian stocks encouraged the so-called carry trade, in which investors add to holdings of higher-yielding assets funded in low interest-rate currencies such as the Japanese currency. In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency moves erase those profits. Gains in the dollar may be limited by speculation industry reports this week will show U.S. home sales declined and consumer confidence fell to a 28-year low. ``The trend is for the dollar to weaken,'' said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co. ``The data simply don't paint a favorable picture of the U.S. economy and that makes the dollar unattractive.'' USD/JPY currently trading at 107.48 as 11:01 am, GMT.

Today's Economic Events

Published on  Mon, Jul 7 2008, 14:01 GMT