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A Stronger Dollar
The US Dollar staged a rally against the euro and sterling last week as the market shifted focus towards the troubled Euro-zone and UK economies whose approach in solving the persistent financial crisis seems to lack direction. The euro broke below 1.3800 for the first time in a year and tested the lows of 1.3700. European Turbulences Help Support the Dollar With the European officials failing to adopt a systematic approach to solve their financial market turmoil, as opposed to the US government whose $700bn rescue plan is undergoing significant progress, the dollar advanced against the euro and sterling early this week as the investors’ focus turned back to the woes facing the European financial system.
The Government’s Bailout Plan Goes Through The US Senate approved on Wednesday night the government’s $700bn bailout plan by a large margin with both the Democratic and Republican candidates backing up the measure by voting 74-25 in favor, after having been rejected earlier on Monday.
Stocks Fall on Unemployment, Factory Orders The US stocks fell on Thursday following the release of weaker than expected factory orders data and seven-year high jobless claims which stoked fears over the US economy and added to the gloominess of its outlook. The Labor department announced on Thursday that the initial claims for unemployment benefits rose to 497,000 from expectations of a 475,000 increase.
Oil Falls to New Lows Crude oil futures fell under $94/barrel last Thursday on lower demand and easing concerns over the US bailout plan. Prices are expected to trade between $80-90 in the next few months and producers are seen cutting production if they fall further.
Economic Indicators The US fundamentals during the week were mixed and barely had an impact on the FX market. GDP for Q2 rose by 2.80%; less than expectations and the previous quarter reading of 3.30%. University of Michigan confidence for the month of September came out at 70.30, compared to expectations of 70.80 and the previous 73.10. ISM Manufacturing fell to 43.5 in September from the previous 49.9 and expectations of 49.50.
Euro Falls to One-Year Lows The euro fell sharply against the dollar and tested 1.3700 last Thursday as the market’s positive sentiment towards the Euro-Zone economy faded, and worries over a possible recession in the 15-country region sustained.
ECB Holds Rates In an expected move, the European Central Bank kept interest rates on hold at 4.25% last Thursday, and shifted away from its usual hawkish stance towards the economy which is suffering from the persistent financial turmoil. ECB president Trichet said data “clearly confirmed” that the economic growth was weakening in the Euro-zone while upside inflation risks had diminished.