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Daily Market Outlook

Thu, Aug 28 2008, 04:30 GMT
by AceTrader Team

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Market Review -   27/08/2008 21:07 GMT

Euro rises versus dollar on hawkish comments by ECB's Weber

The euro rose on Wednesday after trading above its six-month low at 1.4570 (made on Tuesday) as comments by a European Central bank official rekindled speculation about an interest rate increase in the eurozone to quell persistent inflation pressure. Investors also remained wary of nagging troubles in the U.S. financial system as mortgage finance companies Fannie Mae and Freddie Mac moved back into the spotlight, leaving the dollar vulnerable in the near term.  
  
Comments on Wednesday by ECB Executive Board member Axel Weber fuelled the dollar's free-fall when he said that any talk about lower interest rates in the eurozone was premature. He also gave the impression that if the eurozone economy improves toward the end of the year, there might even be scope for tightening. His rather hawkish comments lifted the euro and price rose to a session high of 1.4777. The single currency was last trading at 1.4726, up 0.5 percent on the day.   
  
The dollar fell against a basket of six major currencies, retreating from this year's high at 77.619 hit on Tuesday. The dollar index ended down almost 0.4 percent to 76.942, however, the U.S. currency was little changed versus the Japanese yen on Wednesday as the pair dropped to a session low of 108.70 but gains in the U.S. stock markets (due to data which showed an unexpected rise in new orders for long-lasting U.S. manufactured goods) buoyed some carry trade demand and price rebounded to as high as 109.90. It was last trading at 109.50 by New York closing.  
  
Sterling fell on bets that a deepening slump in the nation's housing market may force the Bank of England to cut interest rates. The pound declined and reached a new two-year low of 1.8285 versus the dollar and 0.8031 against the euro, weakest since June 9. By the end of U.S. session, sterling was trading at 1.8358 and 0.8021 respectively.  
  
Overall, investors are still expected to support the dollar broadly due to rate differentials as the Fed seems likely to keep rates on hold in the coming months whilst central banks in the eurozone, Britain and Australia are expected to lower rates at some stage in order to shield their economies from the threat of recession.   
  
On Thursday, economic data releases include U.K. nationwide house prices and CBI industrial trends survey, German unemployment rate and unemployment change, eurozone business climate and economic sentiment, U.S. PCE data, gross domestic price, weekly jobless claims, personal consumption, and Canada current account.

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Published on  Thu, Aug 28 2008, 05:53 GMT


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