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Daily Market Outlook

Wed, Nov 19 2008, 02:11 GMT
by AceTrader Team

AceTrader

Market Review - 18/11/2008 22:28 GMT

Dollar rises versus euro on increased demand for U.S. debt


Dollar rose against the euro on Tuesday as prices paid to U.S. producers plunged and homebuilder confidence fell, increasing demand for the safety of U.S. Government debt. U.S. producer price index fell by 2.8% in October, the greatest decrease on record, as the faltering global economy caused demand for commodities to dry up. The National Association of Home Builders index of builder confidence which decreased to a reading of 9 in November, the lowest level since record keeping began in 1985.  
  
International demand for U.S. financial assets rose in September by more than economists forecast. Foreigners bought $143.4 billion of U.S. securities in September, the largest net inflow since early 2006. Total net purchases of long-term equities, notes and bonds increased $66.2 billion in September from $21 billion in the previous month. The yield on the two-year Treasury note decreased 0.05 percentage point to 1.15%, and touched 1.13%, the lowest since June 2003. Federal Reserve Chairman Ben Bernanke said massive demand for the dollar means it remains unrivalled as the world reserve currency.  
  
The greenback retreated strongly from 97.42 to around 96.35 on the initial selloff in U.S. stock markets before rebounding to close at 97.00 on the late rally in U.S. equities. Dow Jones industrial average index rose by 151.17 points or 1.83% to end at 8424.75. The Standard & Poor’s 500 index gained by 8.36 points or 0.98% to close at 857.11. The Nasdaq Composite index rebounded by 1.22 points or 0.08% to finish at 1483.27.  
  
The single currency rose briefly to 1.2701 and then fell to 1.2566 on active cross selling in euro especially versus the Japanese yen. Eur/jpy retreated strongly from 123.89 to around 121.13 on the back of the initial selloff in U.S. stock markets. The greenback rose against Swiss franc from 1.1968 to 1.2048, the highest level since September 2007.  
  
Bank of England policymaker Timothy Besley said a rapid fall in global commodity prices means British inflation is likely to fall below the central bank's target next year despite a weakening currency. Besley said that the inflation outlook fully justified the central bank's decision to cut rates by 150 basis points last week. The British pound retreated from 1.5093 to 1.4900 before rebounding in late U.S. session.  
  
Wednesday will see the release of Japan’s all industry index, U.K. CBI industrial trends, U.S. building permits, housing starts, CPI, real earnings and the FOMC minutes.

Published on  Wed, Nov 19 2008, 02:51 GMT