Expert Analysis of Today's Market

Dollar Moderately Lower

Hans Nilsson 2007-11-26

The dollar fell moderately against most key currencies on Monday. The yen followed stock markets and saw some early profit-taking as US equities were initially supported by reports of stronger-than-expected post- Thanksgiving retail sales, but the yen turned higher as the equity advance faltered. The uncertainty over the US economic outlook and the health of financial institutions are factors weighing on the dollar. Investors await US data, including the Conference Board consumer confidence tomorrow, existing home sales on Wednesday, new home sales on Thursday, and personal spending, personal income and PCE deflator on Friday.

The EUR/USD traded higher today but below last week’s record high of thin-market Thanksgivings. One would need a spike in the pair to call a top, but Friday’s high was probably due to thin-market conditions. The pair reached the top of the trading channel, so it was natural to see some retracement, but the trend remains positive.

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Financial and Economic News and Comments

US & Canada

The Chicago Fed national activity index dropped to -0.73 in October from -0.30 in September. The October figure is the lowest since January, indicating economic growth below average. Three of the four broad categories of indicators posted negative readings in October - production, employment, and consumption and housing - while the category of sales, orders and inventories was slightly positive.

Europe

European Central Bank Vice President Lucas Papademos warned the EMU is facing the risk of stronger inflation and weaker growth over the short term. “The current conjuncture seems to point to an uncomfortable, though temporary, combination of higher inflation and somewhat slower economic growth in the coming months,” Papademos said.

ECB Governing Council member Nout Wellink said the euro’s rise against the dollar was not of “immediate concern” for European exporters, but a further ascent would be “worrying.”

Asia-Pacific

French President Nicolas Sarkozy called on Chinese President Hu Jintao to let the yuan rise faster versus the euro.

Fan Gang, an adviser to the People’s Bank of China, said the dollar’s recent decline and the US subprimemortgage crisis are adding to pressure for the yuan to appreciate.

FX Strategy Update

2008
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