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Daily Market Outlook

Wed, Jul 16 2008, 00:09 GMT
by AceTrader Team

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Market Review -15/07/2008 21:12 GMT

Dollar falls to record low against the euro but curbs losses on retreat in oil prices

The greenback fell to a record low to 1.6040 against the euro on Tuesday as investors’ persistent fears over the health of the U.S. financial institutions increased, with Federal Reserve Chairman Ben Bernanke giving a grim assessment of the sector, however, crude oil's largest price drop in seventeen years briefly diverted traders' attention and helped the dollar to rebound from the historic trough and also regain some ground versus the Japanese yen.  
  
Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee that financial markets and institutions remained under ‘considerable stress’ and restoring stability was a top priority for the central bank. Separately, U.S. Treasury Secretary Henry Paulson testified before the committee that distressed housing finance giants Freddie Mac and Fannie Mae had potential to pose systemic risks to the financial system. Oil futures for August delivery declined substantially to as low as $135.92 per barrel before recovering and closed at $138.65 (down $6.53).  
  
On Tuesday, the single currency rose to a record high of 1.6040 versus the U.S. dollar but retreated sharply afterwards and closed at 1.5903 in New York trade as the U.S. dollar got a brief boost from an early bounce in Wall Street stocks after the fall in oil prices increased speculation that sluggish U.S. economic growth could curtail demand. However, renewed financial worries took the steam out of the U.S. stock market rally as the Dow Jones industrials ended below 11,000 for the first time since July 2006. Sagging global stock markets sent investors toward the safe-haven Japanese yen. The dollar fell to as low as 104.16 against the Japanese yen, its third consecutive day of declines and last traded at 104.76. The euro also fell to 166.40 versus Japanese yen, dropping sharply from the record high made on Monday at 169.69.  
  
Elsewhere, sterling managed to rise above 2.0000 versus the U.S. dollar (the first time since July 1) on speculation accelerating inflation will keep the Bank of England from lowering interest rates to avert a recession. Cable rallied to as high as 2.0162 but eased off to trade at 2.0045 at New York closing. Against Australia's currency, the dollar weakened to 0.9851, the lowest level since 1983 whilst the Canadian dollar rose above parity for the first time in 1-1/2 months to a session high of 0.9975. Against a basket of six currencies, the dollar fell for a fifth day on the ICE market to a three-month low of 71.314 but later recovered to around 71.746, down about 0.3 percent on the day.  
  
On Wednesday, economic data releases include Japan Tertiary industry index and machine tools orders, Australia Westpac leading economic index, German CPI data, U.K. average earnings, claimant count and ILO unemployment, eurozone HICP, U.S. CPI data, real earnings, foreign treasury purchases, net long-term TIC flows, capacity utilisation, industrial production and NAHB housing market index.

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Published on  Wed, Jul 16 2008, 00:27 GMT

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