Investment of Mine

Dollar fell to the six weeks’ minimum against euro and suffered losses in reference to yen after the release of the regular string of the weak economic data from the USA and in the course of the price fall of the dollar-denominated credit resources, which became the reflection of the fall of demand on the eve of the holiday season. According to the data of the British association of bankers the three months’ dollar rate Libor decreased yesterday by 0.1 and reached the four years’ minimum of 2.00%.

The deficit of the trade balance in the USA grew in October to $57.2 bln compared to the expected $53.5 and $56.6 the month before. In November the prices on import decreased by 6.7% month/month and 4.4% year/year. The number of applications for the unemployment benefit reached the twenty-six years’ maximum of 573.000.

It is worth mentioning that the data of the retail sales are not much better either compared with what has been expected (-1.8% in November instead of -2% forecast and 2.8% record fall the month before).

Not taking into account the car sales in November the rate made up -1.6% instead of the forecast of -1.8% and -2.2% in October.

In November PPI decreased by 2.2% and the basic value of the core PPI made up 0.1% compared with 0.4% growth in October.

Euro was positively influenced by the release of the not that weak value of the business expectations index of German Research Institute ZEW. The indicator of the economic expectations of the German investors and experts made up -45.2 in December instead of -53.5 the month before. Additional support to the common currency was given

by the announcement of one of the members of the ECB management board Jurgen Stark which made the investors doubt that the ECB would aggressively reduce the rates. Swiss franc suffered losses against euro and yen after the central bank of the country reduced major interest rate to 0.5% - minimal Rate for the last 4 years.

Thus, in the nearest future one should expect the tendency of the American currency and taking into account the decrease of liquidity on the markets expecting holidays mind the speeding-up of the dollar fall.

On Friday the dollar recovered from the thirteen years’ minimum against yen due to the speculations that the US government is going to help the American automakers General Motors Corp. and Chrysler LLC.

“We see the Treasury coming into play” Brian Kim, currency strategist of the Stamford branch of the UBS AG, says. “This fact supports the market”.

The announcement of the Treasury almost brings to nought the possibility that the large automaking companies will be declared bankrupts, which from the point of view of the investors can be regarded as a reason for the reserved optimism. The failure of the aid package to the automakers in the Senate caused the yen consolidation against the major currencies. The senators failed to find a compromise with the representatives of the automakers’ trade unions as for the reduction of the workers’ salaries that’s why there lacked 60 votes for the adoption of the $14 bln aid plan. After the proclaiming of the Senate’s decision, according to some announcements, the General Motors Corp. hired the lawyers and bankers to consider the issue about asking for the protection against the bankruptcy.

The recovery of the confidence on the markets may lead to the activation of the yen sales in the course of the recovery of interest to carry trades and cause the renewal of pressure on the dollar.

According to the weekly results, the reduction of the American currency made up 1.8% and against euro – 4.7%. Since the beginning of the current year the US dollar has lost 19% against yen, which became the most significant weakening of the American currency since 1987.

Pound renewed the historic minimum against euro at 89.97 pence after it had become known that the housing sales in Great Britain fell to the minimal level since 1978, the decrease of the industrial production turned out to be three times bigger in comparison with the economists’ forecasts and the recession in the country according to the British Royal Institution of Chartered Surveyors went deeper.

“Pound can suffer serious losses against dollar as well” Thomas Kharr the leading currency strategist of the Singapore branch of the Standard Chartered Plc. believes. “The perspectives of the British economy look awful. We think that the Bank of England will have to continue reducing the rate drastically”. Pound, according to the expert’s point of view, may fall in the first quarter of the next year to $1.35 per dollar and the Bank of England will reduce the interest rate to 0.5%. Last week the Bank of England reduced the rate to 2% - the lowest level for the last 50 years. Market traders expect the reduction by 0.25 points in January 2009.

This entry was posted on Monday, December 15th, 2008 at 11:13 am and is filed under Finance Review. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.