Daily Market Outlook

Tue, Jul 8 2008, 01:30 GMT
by AceTrader Team

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Market Review -  07/07/2008 22:17 GMT

Greenback retreats against major currencies on weakness in U.S. stocks

Although the dollar extended last week's rise to 107.75 and 1.5611 against the Japanese yen and euro, the greenback retreated sharply in late U.S. session on the back of falling U.S. equity markets (Dow declined over 160 points before recovering to end the day down by 56) caused by renewed fears of more mortgage-related writedowns from financial institutions.  
  
The single currency fell in European session to an 8-day low after last week's sharp retreat from 1.5910, caused by less hawkish comments from ECB President Trichet. Despite the release of much weaker-than-expected May German industrial production (-2.4% vs forecast of 0.4%), failure to penetrate intra-day support at 1.5611 caused active profit-taking activities by European closing and euro staged a strong rebound in afternoon New York trading.  
  
A report from Lehman Brothers also put pressure on the buck as it indicated an accounting change may force the two largest U.S. providers of financing for home loans, Fannie Mae and Freddie Mac, to raise a total of US$75 billion in capital at a difficult time. Shares of both companies slipped and triggered a selloff in U.S. financial shares.   
  
The greenback declined from 107.75 to 106.71 against the yen whilst euro jumped to an intra-day high of 1.5754 before easing. The British pound also surged on the back of the falling dollar to 1.9789. However, usd/jpy recovered some losses as Dow Jones Industrial average traded back in positive territory.  
  
Comments from San Francisco Federal Reserve Bank President Janet Yellen also brought support to the dollar as she said that inflation was starting to outweigh the risk of a deteriorating U.S. economy. Her slightly hawkish remarks suggested that the central bank could lean towards raising interest rates later this year.  
  
In the meantime, investors are paying attention to the annual summit in Japan of the Group of Eight industrialized nations. G8 leaders are focusing on global inflation, which was driven by rising oil and food prices. However, the G8 leaders may not mention much about the weakness in U.S. dollar.  
  
On Tuesday, economic data to be released include U.K. house price data, U.S. pending home sales and wholesale inventories. Both Federal Reserve Chairman Bernanke and Treasury Secretary Paulson are scheduled to speak on Tuesday.

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Published on  Tue, Jul 8 2008, 01:42 GMT

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