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Daily Market Outlook

Fri, Oct 5 2007, 01:12 GMT
by AceTrader Team

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Market Review - 04/10/2007 22:26 GMT

Dollar retreats on a drop in U.S. factory orders

The greenback fell against the euro as a drop in U.S. factory orders suggested the housing recession is slowing the economy, however, investors were reluctant to trade aggressively ahead of the important Friday’s non-farm payrolls data which may give clues on whether the Federal Reserve will cut interest rates for a second time later this month. Interest-rate futures showed a 70% chance that the Fed will cut interest rate by 25 basis points to 4.50% from 4.75% at its Oct. 31 meeting.  
  
The single currency weakened briefly to 1.4067 after the European Central Bank kept its benchmark lending rate unchanged at 4.00% as widely expected on concerns the U.S. housing slump together with ECB President Jean-Claude Trichet who said risks to European growth are weighted towards a weakening economy given the backdrop of market uncertainty.   
  
However, he expected inflation to remain ‘significantly’ above 2 percent for the rest of this year and in early 2008 before moderating, adding to speculation that the ECB may still consider to increase interest rates later this year once the current subprime mortgage crisis is over. Trichet also urged politicians to show ‘verbal discipline’ when discussing the euro. Fed Governor Frederic Mishkin said on Thursday that the euro's appreciation is clearly ‘an issue for Europe right now’. The euro recovered all its intra-day losses and rebounded to 1.4151 against the dollar later in the day after the release of weaker-than-expected U.S. factory orders data.   
  
U.S. factory orders fell by 3.3% in August (much weaker than the expectation of a decrease of 1.5%) after a downwardly-revised 3.4% increase in July. The greenback retreated strongly against the Swiss franc from 1.1815 to 1.1738 but traded inside a range of 116.27-116.77 on Thursday.  
  
The Bank of England today left its benchmark interest rate at 5.75 percent, a six-year high. The British rebounded strongly from 2.0277 to 2.0431 on short-covering (some investors anticipated a cut in U.K. interest rates) together with renewed cross buying in sterling especially versus the euro and the Japanese yen.  
  
Friday will see the release of Japan’s leading indicators, Canada unemployment rate and the important U.S. non-farm payrolls data, which is expected to show 100,000 jobs were added in September after a loss of 4,000 in August.

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Published on  Fri, Oct 5 2007, 01:31 GMT


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