The greenback could found support recently on an increased market anticipation of a close end of the fed's easing cycle which started since the beginning on the sub-prime mortgage bad loan which followed by the credit crisis and loses of the financial market across the broad. The mistrust in the growth performance and the need of liquidity for covering loses and reinforcing the capitals put pressure on the fed to cut the interest rate from 5.25% to 2.25% until now while the inflation is still building up on the current high oil and commodities prices tackling the fed's efforts to spur demand. Actually, the consuming confidence data are coming lower month by month without a stop lowering the investments targets and spending as well. By the end of last week the US Michigan consuming sentiment survey declined again to 62.6 from 69.6 last month even the housing slump is still looking for an end as last week we have had new weak new home sales decline by 8.5% in March too. The figure was the lowest since 1991 It is clear to the market that there are no signs yet for a close end of this continued slump. It is important to look into the fed's coming assessments words which will come out with its interest rate decision tomorrow to know how much they are worried about inflation currently. Cutting by just .25% can show this to the market.
Last week the stock market was optimistic that the biggest loses of the crediting crisis has come and there will not be this massive impact again. The Japanese yen was under pressure in spite of the high CPI data which has shown an increase by 1.2% while the core came .7% showing increased inflation pressure in Japan too which may change the BOJ language tone at their meeting later this week. The demand for Japanese yen increases at these cheering times of equity market as its lower cost making it the most funding currency of the carry trade transactions.
The single currency was under pressure recently after disappointing IFO business climate figure which has fallen from 104.3 in March to 102.4 in April following the flash disappointing figure of April PMI manufacturing which came lower than the market expectations of 51.6 at just 50.8 increasing the market worries about the strong single currency negative impact on the manufacturers and the side effect of the slowing down demand from US.
The BOE 50 billion pound plan of exchanging mortgages back securities for governmental bonds could help the British pound last week but the mortgage approving data forced it to give back most of it gains. The British pound was under the pressure of a slump of the mortgage approvals last week showing further worries about the housing and crediting markets fueling the market expectations of further interest cuts to come.
This week is full of data. We have an US interest rate decision meeting, the US ISM services and manufacturing data, the consuming confidence of April tomorrow which was 64.5, the PMI services and manufacturing data out of EU and UK and also we have the US Labor report by the end of the week. The non-farm payroll slumped by 80k last month. But today we have no key important awaited data to move the market.
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Walid Salah El Din
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