Euro Falls for First Week Since November on ECB Rate Outlook

The euro declined against the dollar for the first week since November on speculation a weakening economy will prompt the European Central Bank to cut borrowing costs further, reducing the currency’s appeal.

The pound slid to within 2 pence of parity with the euro and touched the lowest level in almost seven years with the dollar on speculation the recession in the U.K. will deepen. The greenback rose to a three-week high against the yen as a rally in stocks and an increase in Treasury yields from record lows encouraged investors to buy dollar-denominated assets.

“The pressure on the ECB to begin to lower rates below the 2 percent level is going to be immense,” said Boris Schlossberg, director of currency research in New York at GFT Forex, an online currency brokerage, in an interview on Bloomberg Radio. “Once that occurs, the pressure on the euro is really going to take shape.”

The euro fell 1.3 percent to $1.3855 yesterday from $1.4028 on Dec. 26, the first weekly decline since Nov. 21. It touched $1.3841 yesterday, the lowest level since Dec. 19, after dropping 4.2 percent last year. The dollar rose 1.6 percent to 92.28 yen from 90.81, following a 19 percent drop in 2008. The euro increased 0.3 percent to 127.81 yen from 127.40, after sliding 22 percent last year.

Mexico’s peso was the biggest loser against the dollar this week, dropping 2.1 percent to 13.7338, as a central bank report showed dollar flows from immigrant workers abroad declined in November.

U.K. Housing

Sterling declined 0.7 percent to $1.4484 against the dollar and was little changed at 95.61 pence per euro after the Bank of England reported yesterday that U.K. mortgage approvals slid in November to the lowest level since at least 1999. The pound fell to $1.4354 on Dec. 31, the lowest level since April 2002, and dropped to 98.03 pence per euro on Dec. 30, the weakest level since the single currency’s 1999 debut.

The Bank of England lowered the benchmark interest rate to 2 percent last month, its fifth rate cut in 2008. The central bank will cut its rate to 1.5 percent when it meets on Jan. 8, according to the median forecast of 50 analysts surveyed by Bloomberg.

The yen dropped 5.4 percent to 9.87 versus the South African rand and 5.1 percent to 65.48 versus the Australian dollar as the increase in stocks boosted speculation that investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.1 percent target lending rate compares with 4.25 percent in Australia and 11.5 percent in South Africa.

Stock Gains

The Standard & Poor’s 500 Index increased 6.8 percent this week after falling 38.5 percent in 2008, the biggest rout since the Great Depression. Ten-year note yields rose 0.27 percentage point to 2.40 percent.

The euro, which became the currency of Slovakia on Jan. 1, also fell against the dollar this week as a report showed yesterday that European manufacturing contracted in December at the fastest pace on record. An index based on a survey of purchasing managers by Markit Economics fell to 33.9 in December, the lowest level since the start of the data in 1998. A reading below 50 indicates a decline.

“It’s confirming everyone’s fear that the European economy continues to contract,” said Jessica Hoversen, a currency and fixed-income analyst at MF Global Ltd. in Chicago, who predicted the euro may fall in the first quarter below $1.30. “The ECB has no choice but to continue to cut rates. That’s negative for the euro.”

The ECB will lower its main refinancing rate from 2.5 percent to 1.5 percent by the second quarter of this year, according to the median forecast in a Bloomberg survey of analysts. The central bank cut the rate by 1.75 percentage points since October, the first reductions since June 2003.

Currency Trends

The moving-average convergence-divergence chart is showing a selling signal for the euro versus the dollar. The MACD index for the pair, or the difference between the 12- and the 26-day moving average, fell below the nine-day moving average yesterday for the first time since November, indicating the European currency’s rally starting last month may be over.

“Momentum funds are buying some dollars,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. “There are views that the dollar has been oversold.”

Zero interest rates in the U.S. may damp global demand for the greenback, hampering the government’s efforts to finance stimulus packages, some traders said.

The Federal Reserve cut its benchmark interest rate to a range of zero to 0.25 percent for the first time last month and shifted its focus to debt purchases to support the economy. The U.S. budget deficit swelled to $164.4 billion in November, official figures show.

“We will be testing the tops again at $1.43 to $1.45 in near term,” said C.J. Gavsie, managing director for foreign- exchange trading at BMO Capital Markets in Toronto, referring to the euro-dollar exchange rate.

Yen Drops This Week as Japan’s Inflation Slows, Output Declines

The yen posted its first weekly decline against the dollar in two months as Japan’s inflation slowed and industrial production slumped, adding to bets the central bank will pump cash into the economy at a faster pace.

Japan’s currency depreciated for a third week versus the euro as Bank of Japan policy board member Hidetoshi Kamezaki said officials may consider “extraordinary steps” to improve access to funding for companies. The dollar fell for a fifth week against the euro as reports showed U.S. holiday-season spending declined.

“The economic outlook for Japan remains dark,” said Gareth Sylvester, senior currency strategist in San Francisco at HiFX Plc, a U.K.-based foreign-exchange brokerage firm, in an interview on Bloomberg Television. “That should be reflected in yen weakness.”

Japan’s currency fell 0.5 percent to 90.81 per dollar at 4:54 p.m. in New York, from 90.38 yesterday. It slid to 90.99 on Dec. 23, the weakest level since Dec. 15. The yen may decline to 92 per dollar in three weeks before strengthening to 85 in the first quarter of 2009, according to Sylvester. The yen fell 0.6 percent to 127.40 per euro from 126.67. The euro was little changed at $1.4023 from $1.4025.

The ruble declined to a record against the euro as Russia’s central bank extended devaluation to compensate for falling crude oil prices. The ruble dropped as much as 1.6 percent to 40.8931 per euro, the weakest level since the European currency was introduced in 1999. It touched a four-year low of 29.0577 against the dollar, dropping 19 percent since early August.

Weaker Pound

Sterling moved closer to parity with the euro yesterday, sliding to a record 97.32 pence. The pound was quoted at 96.03 pence and $1.4634 today.

The yen fell 1.7 percent this week versus the dollar, the first weekly decline since the five days ended Oct. 31, and weakened 2.5 percent versus the euro. Japan’s currency also slid 2.2 percent against the Australian dollar and 1.8 percent versus New Zealand’s currency. The U.S. dollar decreased 0.8 percent versus the euro from Dec. 19.

Japan’s consumer price index excluding fresh food rose 1 percent last month, after increasing 1.9 percent in October, the government said today in Tokyo. Factory output tumbled 8.1 percent in November from the previous month, the fastest pace in 55 years.

The central bank lowered the overnight lending rate on Dec. 19 to 0.1 percent from 0.3 percent, the second cut in two months, and decided to buy corporate debt for the first time to pump money into the ailing economy.

BOJ Policy

Room for cutting borrowing costs further is “limited,” and the bank’s next policy steps should focus on improving funding for companies and influencing longer-term borrowing costs, Kamezaki told reporters.

“Additional policy easing isn’t likely to focus on the benchmark rate,” Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former BOJ currency trader, wrote in a research note today. “A sudden decline in the inflation rate could push nominal long- term yields lower and become a reason to sell the yen.”

Japan’s currency gained 28 percent against the euro and 23 percent versus the dollar this year as the global recession and $1 trillion in losses on mortgage-related securities worldwide prompted Japanese investors to sell higher-yielding assets and repatriate overseas earnings. It was on course for a 57 percent advance against the Australian dollar and a 67 percent increase versus the British pound.

Yen and Exports

The surge of the yen, which reached a 13-year high of 87.14 per dollar on Dec. 17, is amplifying the woes of exporters including Toyota Motor Corp., Honda Motor Co. and Sony Corp. Japan’s overseas sales declined a record 27 percent in November from a year earlier, the Finance Ministry reported on Dec. 22.

The yen may weaken as the drop reduces demand for the currency, according to Boris Schlossberg, director of foreign- exchange research in New York at GFT Forex, an online currency brokerage.

“Japan is really losing a lot of its ability to generate surplus from its trade,” said Schlossberg in an interview on Bloomberg Television. “That’s really changed the mind of the market as far as the safe-haven status of the yen goes.”

The U.S. greenback declined for the week against the euro as the recession led consumers to trim spending. U.S. retail sales fell as much as 4 percent this holiday season as consumers limited purchases to necessities, according to SpendingPulse.

“The dollar looks vulnerable and may fall by the middle of next year,” said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. “The state of the U.S. economy suggests the dollar will weaken.” The dollar may reach its post-World War II low of 79.75 yen next year, he said.

Dollar May Decline to 84 Yen, Bank of Tokyo-Mitsubishi UFJ Says

The dollar may fall to around 84 yen based on trading patterns, according to Masashi Hashimoto, a currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

The currency may weaken to 84 yen on a decline below so- called support at the five-day moving average of 90.27 yen, Hashimoto said. The currency also may extend its 19 percent loss against the yen this year after a failure to rise above so- called resistance at the 21-day moving average of 91.59. The greenback triggered a triangle formation in December that targets the 84 yen level, he said.

“The 21-day moving average has been weighing on dollar-yen since yesterday, so it may break below” 90.27 yen, Hashimoto said. “The target of the triangle that had been triggered is around 84 yen.”

The dollar traded at 90.42 yen as of 2:05 p.m. in Tokyo from 90.38 yen late in New York yesterday. The 84 yen level was last traded in July 1995. The U.S. currency reached a record low of 79.75 yen in April 1995.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders.

Holiday Sales in U.S. Fell as Much as 4%, SpendingPulse Says

U.S. retail sales fell as much as 4 percent this holiday season as consumers limited purchases to necessities and cut back on clothing, electronics and jewelry, according to SpendingPulse.

Spending figures are the lowest since MasterCard Advisors started tracking data in 2002 to provide the SpendingPulse service, said Michael McNamara, vice president of research and analysis. He estimates sales, excluding autos and gasoline, fell 2 percent to 4 percent from Nov. 1 through yesterday.

Consumers facing a recession, tightening credit and the highest unemployment rate in 15 years shortened their gift lists and spent less. Retailers including Macy’s Inc. and AnnTaylor Stores Corp. responded by increasing markdowns, which stand to hurt profit margins in what may be the weakest holiday season in four decades.

“Overall this has been one of the most challenging holiday seasons on record,” McNamara said today in an interview.

The SpendingPulse figures follow forecasts of falling sales from other industry groups. Sales at stores open at least a year may drop as much as 2 percent in November and December, the International Council of Shopping Centers said on Dec. 23, more than the previously projected 1 percent decline.

Apparel, Luxury

From Nov. 1 through Dec. 24, women’s clothing sales dropped 23 percent and men’s fell 14 percent, according to SpendingPulse.

Combined electronics and appliance sales tumbled 27 percent, with purchases over $1,000 suffering the most, according to SpendingPulse data. Luxury sales, including jewelry, plunged 35 percent, the data showed.

Purchases over the Internet fared better, with a 2.3 percent decline. E-commerce may have been helped by inclement weather at the end of the holiday shopping season, McNamara said. Historically Web sales have posted 15 percent to 20 percent year- over-year sales gains.

The SpendingPulse data service calculates its sales estimates based on MasterCard Inc. network transactions and adjusts for cash, checks and other payment forms. MasterCard is the world’s second-biggest credit-card company.

Deeper Recession

The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Consumer spending fell the most in almost three decades and forecasters project an even deeper slump in the final three months of this year. Jobless claims rose yesterday to a 26-year high.

Retail sales declined 5.3 percent Dec. 19 to 21 because of inclement weather and a slowing U.S. economy, Chicago-based research firm ShopperTrak RCT Corp. said yesterday in a statement.

“It’s a terribly challenging environment for retailers,” Scott Krugman, a spokesman for the National Retail Federation, a Washington-based trade group, said in a Dec. 24 Bloomberg Television interview. “The week after Christmas is going to be more crucial for retailers than ever. The Friday after Christmas, with the discounts we’re hearing about, is going to be like another Black Friday.”

The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies gaining.

The index doesn’t include Wal-Mart Stores Inc., the world’s largest retailer, which rose 15 cents to $55.44 yesterday in New York Stock Exchange composite trading. Wal-Mart shares have gained 17 percent this year.

The U.S. stock market was closed today for the Christmas holiday.

GBP Pounded by Inflation Report

The greenback relinquished some of its recent gains against the majors, slipping to 108.39 against the yen and 1.4978 versus the euro. Nonetheless, the dollar continues to benefit from the sharp retreat in oil and commodities prices. In the coming session, traders will look ahead to retail sales for July, which are expected to fall by 0.1% reversing the 0.1% increase a month earlier while the excluding automobiles reading is seen lower at 0.5% from 0.8%.

Sterling Pounded by Inflation Report

The pounded fell sharply following the release of the Bank of England’s inflation report, selling off to its lowest level since November 2006 at 1.8867. Further, UK futures markets immediately priced in a 60% probability for a December BoE rate cut, versus a 10% chance prior to the release. The Bank’s inflation report highlighted the growing risks for a possible recession, stating that risks to GDP are on the downside, with the slowdown sharper than seen in May. While it added that inflation risk remains to the upside, it expects CPI to be below the 2% target in two years if interest rates hold steady at 5%. As such, the next rate move by the Bank of England will more likely be a cut rather than a hike in order to jumpstart the lackluster UK economy.

The jobs report from the UK released earlier bodes poorly for the economy with the unemployment claimant count shooting up to its highest level in 15-years at 20.1k in July versus an upwardly revised 20k reading from June. The ILO unemployment rate also rose by more than expected at 5.4% in June, up from 5.2% a month earlier.

Yen Advances Despite Data

The yen recovered against the majors, rising to 108.39 versus the dollar and 161.62 against the euro. However, data released earlier in the Tokyo session revealed a larger than anticipated contraction in economic growth as Q2 GDP fell by 2.4% compared with 4.0% growth a year earlier and down 0.6% versus 1.0% growth in the previous quarter. The report reinforces sentiment expressed by government officials last week, raising fears that a recession may be looming for Japan.

Amid widespread losses in the global equity bourses, traders unwound the carry trades – prompting the euro/yen pair to sell-off to its lowest level since May 13th at 161.62. EURJPY has since recovered back above the 162-handle with interim resistance seen at 163, followed by 163.30 and 163.75. Additional ceilings will emerge at 164, backed by 164.40 and 164.80. On the downside, support begins at 162.20, followed by 162 and 161.60. Subsequent floors are eyed at 161.30, followed by 161 and 160.50.

U.K. Retail Business Administrations Fall by 30%, Deloitte Says

July 30 (Bloomberg) -- The number of U.K. retail businesses placed in administration in the first half of 2008 has fallen by 30 percent as the worst effects of competition from Internet sales subsides, research by Deloitte & Touche LLP shows.

Book, music, DVD, gift and toy retailers contributed to the change, the business advisory company said today in an e-mailed statement. Administration figures are generally ``skewed'' toward smaller businesses, Deloitte said. Administration in the U.K. is a procedure for troubled companies, comparable to Chapter 11 in the U.S.

Clothing, fashion and cosmetics companies had a 21 percent increase in administrations, the only sector to have a rise.

``The drop-off in figures in these sectors this year shows that the worst effects of this maturing market may have been felt,'' Lee Manning, a spokesman for Deloitte said in the statement. ``We would expect furniture and household-related retailers to experience an increase in failures next quarter.''

Dollar Snaps Two-Day Drop on Rising Bets for Fed Rate Increase

By Bo Nielsen and Ye Xie

May 22 (Bloomberg) -- The dollar snapped two days of declines against the euro, rallying from the lowest level in a month, as traders added to bets the Federal Reserve will raise interest rates by year-end and oil retreated.

The U.S. currency also gained versus the yen after minutes of the Fed's April meeting yesterday showed most policy makers viewed the cut in the target rate to 2 percent as ``a close call,'' indicating the central bank has gone on hold to stem inflation. The New Zealand dollar rose against all of the major currencies after tax cuts reduced the need to lower rates.

``The Fed is telling us to not think in terms of easing,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``That is the most important feature behind the dollar comeback today.''

The U.S. currency strengthened to $1.5710 per euro as of 12:18 p.m. in New York, from $1.5795 in New York yesterday. It earlier touched $1.5814, the lowest level since April 24. The dollar rose to 104.03 yen, from 103.05 yen. The euro traded at 163.43 yen, up from 162.76 yen.

The dollar extended its gains as the price of crude oil fell to $131.85 after surpassing $135 earlier. A decline in the price of oil can lighten the financial burden on consumers.

U.S. house prices fell less than expected in the first quarter. The Office of Federal Housing Enterprise Oversight said its house price purchase index declined 0.2 percent, after rising 0.3 percent the previous quarter. The median forecast in a Bloomberg News survey of 13 economists was for a drop of 1.3 percent.

Kiwi Climbs

The New Zealand dollar rose after Finance Minister Michael Cullen cut taxes, easing pressure on the central bank to lower interest rates to support the economy. The kiwi, as it is known, climbed to 78.96 U.S. cents, the highest level since May 7, before trading at 78.46 cents, from 77.70 yesterday.

The Australian dollar yesterday touched the highest since being allowed to trade freely in 1983 as investors sought the nation's higher-yielding debt. The currency, which climbed to as high as 96.54 U.S. cents yesterday, was at 95.51 cents today, from 96.25. The Aussie has risen about 10 percent this year, the second-biggest gain among the 16 most-traded currencies.

The Aussie will climb to equal value with the U.S. currency for the first time since 1982 as the central bank considers raising interest rates, say banks that include RBC Capital Markets Inc. and ABN Amro Holding NV.

Interest-Rate Bets

Futures on the Chicago Board of Trade show traders see a 92 percent likelihood the Fed will keep its target rate for overnight lending between banks at 2 percent on June 25, up from odds of 88 percent yesterday. Traders also see a 32 percent probability the Fed will lift the rate in September to 2.25 percent, up from a 21 percent chance yesterday.

``The Fed has a more balanced view on inflation and growth,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. The dollar decline has ``lost momentum.''

The dollar has fallen 2 percent against the euro since May 8, after European Central Bank President Jean-Claude Trichet said inflation remains the bank's top priority. That signaled policy makers won't cut the 4 percent benchmark interest rate soon.

The dollar advanced to $1.9786 against the British pound, from $1.9732, and was at 1.0324 versus the Swiss franc, from 1.0250.

The Dollar Index traded on ICE futures in New York, which tracks the dollar against currencies of six trading partners, rose to 72.231, from 71.938 yesterday.

Downgraded Estimate

Gains for the dollar may be limited as the market starts to focus on the Fed's downgrade of its 2008 economic growth estimate, which accompanied the minutes yesterday, wrote Derek Halpenny, head of currency research at Bank of Tokyo-Mitsubishi in London, in a note to clients today.

The central bank cut its growth projections to a range of 0.3 percent to 1.2 percent from its January forecast of 1.3 percent to 2 percent. The Fed's interest-rate reductions this year, a total of 2.25 percentage points, were the most aggressive in almost two decades.

``We expect the dollar to remain under selling pressure as market participants' optimism over a notable upturn in economic activity gradually fades,'' Halpenny wrote.

The euro climbed versus the dollar yesterday after German business confidence unexpectedly rose, bolstering speculation the ECB won't cut interest rates. Germany is the biggest economy in the euro region.

Charts

The European single currency may rise to $1.5850 against the dollar in one week, based on charts used to predict price movements, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

The currency has held above so-called support at the five- and 21-day moving averages of $1.5663 and $1.5553, respectively, signaling further gains in the near term, Tokyo-based Hashimoto said. Support is where buyers are expected to outweigh sellers.

Buoyed by gains in the Standard & Poor's 500 Index, the yen fell 2.2 percent against the New Zealand dollar and 1.8 percent against the South African rand. The two currencies are popular in the so-called carry trade in which investors borrow money cheaply to invest in assets where rates are higher.

The Japanese borrowing cost of 0.5 percent compares with 11.5 percent in South Africa and 8.25 percent in New Zealand. The allure of the trade falls when currency volatility rises as it jeopardizes returns on the interest rate spread. The S&P rose 0.1 percent after two days of decline.

Dollar's Share of Currency Reserves Falls, IMF Says

The dollar's share of global foreign-exchange reserves fell to the lowest level since records began in 1999, as international demand for U.S. assets slumped after the subprime-mortgage market collapsed.

The U.S. currency accounted for 63.8 percent of reserves at the end of September, down from 65 percent at the end of June, the International Monetary Fund said today in Washington. The share of euros increased to 26.4 percent, from 25.5 percent.

The figures suggest central banks diversified out of the dollar as it fell to its weakest in a decade. Investors sold a record amount of U.S. securities in August when defaults on subprime mortgages rippled through financial markets and the Federal Reserve signaled it would cut interest rates.

``There continue to be indications that sovereign holders are trying to scale back the share of dollars in their reserves,'' Michael Malpede, senior currency analyst at MF Global in Chicago, said before the IMF's release.

China, Russia and other countries with trade surpluses or rising energy-export earnings are setting up so-called sovereign wealth funds to increase earnings on their reserves. Speculation also intensified in the third quarter that Saudi Arabia, United Arab Emirates and other Middle Eastern nations would follow Kuwait and end their currencies' pegs to the dollar.

Total Reserves

Total foreign-exchange reserves increased in the third quarter to $6.04 trillion from $5.72 trillion at the end of June. The figures on currency allocations are based on a smaller total, $3.83 trillion last quarter, because not all central banks agree to identify the breakdown of their reserves.

The fund's quarterly figures go back to 1999, the year the euro was introduced. The dollar's share has declined from 71.1 percent in March 1999, while the euro's allocation has climbed from 18.1 percent.

While the dollar's share of foreign exchange reserves is declining, the size of dollar holdings has continued to rise with the gains in total reserves. The dollar amount climbed to $2.45 trillion in September from $2.08 trillion a year before.

``Small movements in the dollar's share are not very important,'' said Brad Setser, a fellow at the Council on Foreign Relations in New York who used to work at the U.S. Treasury. ``The real issue is that the amount of dollars held by central banks is rising dramatically.''

Dollar's Decline

The Fed's trade-weighted broad dollar index, a measure of the U.S. currency's value against its counterparts from the biggest American trading partners, fell as low as 100.36 in September, the weakest since 1997. Since then, it reached a record low of 97.38 on Nov. 7.

International investors have reduced their holdings of U.S. stocks and bonds since the August credit collapse hammered the values of corporate bonds and securities tied to subprime mortgages. The losses spurred by rising U.S. mortgage defaults caused banks and securities firms worldwide to write off more than $80 billion.

Foreigners were net sellers of long-term U.S. financial assets in the third quarter, U.S. Treasury figures show. Monthly sales averaged $11.8 billion in the period, compared with average net purchases of $64 billion in the previous five years.

In August, when the credit rout sparked concern that banks would curtail lending, leading to a slump in spending that would send the U.S. into recession, foreigners sold a net $40.7 billion of American stocks. The Standard & Poor's 500 stock index has lost about 2 percent this quarter.

Confidence in Dollar

Treasury Secretary Henry Paulson and Fed Chairman Ben S. Bernanke expressed confidence last month that the dollar will keep its mantle as the world's top reserve currency.

``I don't see any significant change in the broad holdings of dollars,'' Bernanke said in answering questions at a Nov. 8 congressional hearing. The dollar ``remains the dominant reserve asset and I expect that to continue to be the case,'' he said. 

Paulson defended the dollar in remarks to reporters on Nov. 9, at a time when it had fallen to a record low against the euro and Canadian dollar and the weakest versus Britain's pound since 1981.

``The dollar has been the world's reserve currency since World War II and there's a reason,'' said Paulson, a former Goldman Sachs Group Inc. chief executive officer. ``I put the U.S. economy up against any in the world in terms of competitiveness -- that's a fact.''

Sterling Fell On Rate Cut Concern

Sterling dropped to a record low versus the euro on concern that the Bank of England may lower its interest rates again in the beginning of next year. The greenback is soft across the board as momentum market participants took profits.

The BOE rate cut speculation arose last week when the Bank of England released its December monetary policy meeting minutes, which showed a unanimous vote for a 25-bp rate cut this month. Also, the bank heightened the impact of recent financial market turmoil and the consequent credit market tightness on the economy and inflation. The BOE and Fed are both likely to have a couple of rate cuts in the coming year, which weigh on their currencies.

In contrast, the European Central Bank may keep its benchmark rate unchanged. The euro rose to 0.7311 versus the sterling, and tested a resistance level at 1.45 against the dollar.

Financial markets in Australia, Hong Kong and the UK are closed for the Boxing Day. Currency trading will remain very light towards the end of this year.

Tomorrow will see US durable goods orders report, weekly job report and consumer confidence. Durable goods orders are seen to rise 2.0% in November, compared with a 0.2% decline in the previous month. Core durable goods orders are likely to increase 0.3%, versus a prior month¡¯s reading of ¨C0.4%. Weekly initial claims are expected to change from 346k to 342k. US consumer confidence is estimated to fell from 87.3 to 86.5.

EURUSD will face interim resistance at 1.45, followed by 1.4530 and 1.4550. Additional ceilings will emerge at 1.4580, backed by 1.46. Support starts at 1.4470, backed by 1.4430, 1.44 and 1.4380. Subsequent floors are eyed at 1.4350.

GBPUSD encounters interim resistance at 1.98, backed by 1.9850 and 1.9870. Subsequent ceilings will emerge at 1.99, followed by 1.9930 and 1.9980. On the downside, support begins at 1.9760, followed by 1.9730 and 1.97. Additional floors are eyed at 1.9670, backed by 1.9650 and 1.9620.

USDJPY encounters interim resistance at 114.50, backed by 114.80 and 115. Subsequent ceilings will emerge at 115.30, followed by 115.50 and 116. On the downside, support begins at 114.20 and 114, followed by 113.80. Additional floors are eyed at 113.50, backed by 113.20 and 113.

Joint Central Bank Move Weighs on JPY

The major currency pairs moved sharply in early Wednesday trading following the announcement of a concerted central bank move, consisting of the Fed, BoE, ECB, SNB and BoC, to alleviate global liquidity concerns and inject much-needed cash into the credit-tight financial markets. The Fed pledged at least $40 billion in a new term auction facility in which loans would be auctioned off at rates far beneath the discount rate, as well as announcing swap lines with the ECB and SNB for up to 6-months. The kneejerk reaction to the news was a sharp jump higher in US equity futures, which coincided with a sell-off in the yen as traders rewarded the carry trade pairs. The dollar came under selling pressure against the euro and sterling, falling to 1.4748 and 2.0576, respectively.

Further, to quell market suspicion that today’s announcement was in response to yesterday’s dour reaction to the FOMC’s 25-basis point rate cut, a senior Fed official said the coordinated central bank initiative has been in the works for some time. The Fed official said that the market would not know which banks borrow from auction facility and was not about specific institutions, but rather aimed at market functioning.

The ECB’s Papademos commented that the joint central bank move was aimed at easing “elevated pressures” in the term market and that the move was consistent with the ECB’s current monetary policy stance. Papademos assured there was no crisis on financial markets as a whole, and that money market tensions have had a limited impact on firms and consumers’ borrowing rates.

Economic data released from the US included the October trade deficit, which crept up to $57.82 billion versus $56.45 billion a month earlier, and slightly higher than consensus estimates. Import prices also jumped higher than expected at 2.7% versus calls for an increase to 2.0% from 1.8% in the previous month.

Key data slated for release on Thursday will see weekly jobless claims, November producer prices, and retail sales. Weekly jobless claims are estimated to slip to 335k, versus 338k last week. The November headline PPI is seen climbing to 1.5% m/m versus a 0.1% reading from October, while the core PPI figure is forecast to 0.2% from a flat reading previously. The more important reading will be retail sales, to gauge the US consumers’ resilience to recent financial market turmoil and persistent deterioration in the housing market. Retail sales for November are estimated to rise by 0.6% from 0.2% a month earlier. The excluding automobiles figure is also expected to improve to 0.6%.

 

Crude Oil Slips Below $94 In Early Trading

Oil prices dropped below the $94 a barrel mark in early trading, pulling away from record highs reached last week. Light sweet crude for December delivery moved at $93.95, down $1.98 on the session. Oil moved lower as tensions eased in the Middle East, reducing fears that crude oil supplies could be disrupted.

Last week, crude continued its march towards $100 a barrel and the inflation-adjusted record levels of $101.70, reached in April of 1980. Oil finished the week up by about 4.4%. Prices were pushed by strong employment data in the U.S. Friday which could up the demand for energy. Oil finished up $2.44 on Friday after hitting a record high of $96.24 in electronic trading Thursday morning.

Traders anxiously await weekly inventory data on Wednesday, which could push oil past the $100 a barrel mark. Oil soared Wednesday after the Department of Energy reported a drop in stockpiles and posted a record close of $94.53. The weekly report showed crude inventories were down 3.89 million barrels for the week ended October 26. Analysts had expected crude oil inventories to increase by about 300,000 barrels.On Monday, investors looked to ISM non- manufacturing data which will be released at 10 a.m. ET.

Traders will also monitor speeches by US Federal Reserve''s board members Frederic S. Mishkin at New York and Randall S. Kroszner at Virginia in the morning.Meanwhile, natural gas for December delivery fell to $8.104, down 3.14 on the session. Prices are down for a second straight session, slipping away from a six-week high. In metal news, gold prices inched lower on Monday morning after reaching its highest level in more than a quarter-century late last week.

Bullion for December delivery traded at $806.30, down $2.20 on the session. The metal touched as high as $811.00, its highest level since 1980, on Friday. The U.S. dollar saw a little strength Monday in New York, reducing gold''s hedge value. The greenback pulled away from a record low against the euro and also saw strength against the sterling and others in early trading. Gold reached as low as $803.50 in electronic trading, but pared some of the losses as the dollar eased back against the euro.

Gold usually moves in the opposite direction as the dollar because of its hedge value. Gold soared sharply on Friday and moved past the $800 an ounce level, closing up $14.80 on the day. The metal soared after the US Federal Reserve''s decision to lower its interest rates by 25 basis points to 4.5% on Wednesday.

The precious metal has been moving higher for 2 ### months as weakness in the greenback has upped gold''s hedge value. Bullion is up modestly for the week, adding to sharp gains from the previous week.

USD Supported by Data

The greenback recovered against the majors at the start of the week, benefiting from an upbeat report on the services sector. The dollar bounced off its lows versus the euro and sterling, from 1.4524 and 2.0896, respectively. This week’s US economic calendar is light, with the releases of Q3 productivity, wholesale inventories, trade balance, and November University of Michigan consumer sentiment.

As such, market attention will shift to Fed Chairman Bernanke’s Congressional testimony, scheduled for Thursday morning. Traders will scrutinize Bernanke’s comments for any indication another 25-basis point rate cut can be anticipated in December. Further, great interest will be placed on the Fed Chairman’s assessment on the state of credit conditions as well as materialization of additional subprime related losses on banks’ balance sheets and its subsequent impact on the economy as a whole.

The October non-manufacturing ISM reading provided support for the greenback, as it unexpectedly improved to a 55.8 reading, defying calls for a decline to 54.0 from 54.8 in September. The employment index stood at 51.8, down from 52.7 while new orders came in at 55.7, up from 53.4 a month earlier.

Cable Drifts on Weak UK Data

Sterling backed away from its highest level in 26-years against the dollar on the heels of softer than expected economic data from the UK. The October services PMI fell short of consensus estimates at 53.1 versus calls for a smaller decline to 56.1 from 56.7 a month earlier. Industrial output unexpectedly dropped 0.4% m/m in September, down from a 0.1% increase from August, while also posting a 0.2% decline versus a 0.7% increase from a year earlier. Meanwhile, manufacturing output also disappointed, falling by 0.6% compared with a 0.4% increase from the previous month and down by 0.1% versus a 0.6% increase a year earlier.

The economic calendar from the UK is light this week, with the Bank of England announcing the results of its policy deliberation and the September trade deficit. The BoE is largely expected to leave policy unchanged at 5.75%. Also, as is customary, the BoE is not seen releasing a statement with the unchanged decision.

Cable retreated from beneath the 2.09-level to dip below 2.08. Support is seen at 2.0750, followed by 2.07 and 2.0670. Additional floors are eyed at 2.0640, backed by 2.06 and 2.0560. On the upside, resistance starts at 2.0830, followed by 2.0870 and 2.09. Subsequent ceilings will be eyed at psychological barriers at 2.0950 and 2.10.

Travelex's Jones Says Pound Will Rise to $2.1 `Fairly Soon'

Matthew Jones, foreign-exchange strategist at Travelex Australasia Group in Sydney comments on the dollar, pound, euro and Australia's currency.

``You would have to be very brave to buy the dollar at these levels. It's been a one way street. I'd be selling the dollar. Virtually everything is at multi-decade highs and there's no reason why it can't continue.

``I like the pound. I'm seeing a target of $2.1 we should see fairly soon. You can't go far wrong with the euro either. It's very hard to pick a top but $1.5 is achievable in the current environment.

``I tend to think the Fed will stand pat for a while. Oil is a big concern for the U.S. at the moment and that is going to push inflation up. They've acted early so hopefully they won't have to cut as far in the future.

``With the U.S. slowing, it's going to put some breaks on the euro economy as well. I can't see the ECB taking much more action. Possibly one more raise early next year.

``The Bank of England is meeting this week and I can't see them acting. It's not so much interest rates driving currencies now as current sentiment in the U.S. Payrolls came out twice what was expected but the dollar still fell.

``The Japanese economy is running on two lines. Business spending is good and exports are strong but the consumer is still weak. There won't be a rate hike in Japan until the consumer starts to spend more.

``A lot of our customers are standing on the sideline here in Australia expecting a rate hike. That will help the Australian dollar push up through the 93 cent level and past the recent high we've seen.

``With the current state of the economy and the expected interest rate hikes, we should see the Australian dollar gain a lot of strength in the next few months.''

To contact the reporters on this story: Catherine Yang in Hong Kong at cyyang@bloomberg.net ; David McIntyre in Sydney at dmcintyre2@bloomberg.net

Pound Has Biggest Weekly Gain This Year Against Dollar on Rate

The British pound had its biggest weekly gain this year against the dollar, rising to a 26-year high, on growing speculation the Bank of England won't cut interest rates this year.

The U.K. currency climbed for a seventh day, its longest winning streak in almost a year, as traders bet the central bank will keep rates at a six-year high next week. The Federal Reserve lowered its benchmark a quarter point two days ago, widening the difference between the U.S. and U.K. key rates.

``Very, very negative U.S. dollar sentiment paired with a solid performance from the U.K. has been the recipe for these gains,'' said Nick Bennenbroek, head of currency research in New York at Wells Fargo & Co. ``You wouldn't expect to see a rate cut from the Bank of England until next year.''

The British currency was at $2.0892 as of 6:10 p.m. in London, from $2.0801 yesterday. Earlier, it rose to $2.0896, the strongest since May 11, 1981. Against the euro, the pound slipped to 69.49 pence, from 69.34 pence. Wells Fargo forecasts the pound will fall to $2.03 by the end of the year.

The U.K. central bank has raised the cost of borrowing by a quarter percentage point three times this year to control inflation in Europe's second-biggest economy. It will keep the rate unchanged at 5.75 percent when it next meets on Nov. 8, according to 57 of 60 economists surveyed by Bloomberg News.

`Dizzying Heights'

``The pound has reached new, ever-more dizzying heights,'' Paul Robinson, a currency strategist at Barclays Capital in London, wrote in a report today. ``The last time it was at these levels was in the early leadership days of Margaret Thatcher and Ronald Reagan. Momentum remains behind the pound.''

The pound, which rose almost 1.8 percent against the dollar this week, the most since December 2006, will strengthen to $2.07 in one month, compared with a previous prediction of $2.04, Barclays's Robinson said today. It will then fall to $2.04 in three months and $1.99 in six months, he said.

The median of 42 forecasts compiled by Bloomberg is for the pound to end the year at $2.05 before dropping to $2.01 by the end of the first quarter.

The implied yield on the three-month U.K. December interest- rate futures contract rose 5 basis points today to 6.22 percent. The yield on the March 2008 contract climbed 1 basis point to 5.90 percent. The contracts settle to the three-month London interbank offered rate for the pound, which has averaged 16 basis points more than the central bank's key rate over the past 10 years and 72 basis points more in the past three months.

``Sterling looks fairly firm,'' said Steve Barrow, chief currency strategist at Bear Stearns Cos. in London. ``Markets also backed away from the idea of near-term rate cuts in the U.K.''

Gilts Recover

Gilts recouped losses from mid-week as financial stocks led declines in equity markets, spurring safe-haven buying of government debt.

The FTSE 100 Index declined 0.8 percent. Barclays Plc and Royal Bank of Scotland Group Plc sank to the lowest in more than three years on concern British banks' earnings will be hurt by the credit-market turmoil.

``It's a financial story built on rumors and speculation of further losses at banks, with some in the U.K. involved,'' said Karsten Linowsky, a fixed-income strategist at Credit Suisse in Zurich. ``It's giving a strong bid in the gilt market.''

The benchmark 10-year note gained, with the yield falling 5 basis points to 4.87 percent. The price of the 4 percent security due September 2016 was at 93.81. Two-year yields fell 8 basis points to 5 percent.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Japanese Yen, China's Yuan, Baht, Peso: Asia Currency Preview

By Aaron Pan

Bloomberg -- The following events and economic reports may influence trading in Asian currencies today.

Exchange rates are from the previous session.

Japanese yen: Chief Cabinet Secretary Nobutaka Machimura will talk to reporters after an 8:30 a.m. Cabinet meeting and again at 4 p.m. in Tokyo, as part of his regular press briefings. Finance Minister Fukushiro Nukaga and Economic and Fiscal Policy Minister Hiroko Ota will hold a news conferences after the meeting. The Bank of Japan will release the nation's monetary base data for October at 8:50 a.m.

The yen traded at 115.70 per dollar at 5:45 p.m. in Singapore yesterday.

South Korean won: The Bank of Korea is scheduled to report data on the country's foreign-exchange reserves today. The reserves increased by $1.99 billion to $257.3 billion in September.

South Korea's consumer prices unexpectedly rose in October, pushing annual inflation to the highest in more than two years, on soaring fuel and food costs. The consumer price index climbed 0.2 percent from September, when it gained 0.6 percent, the National Statistical Office said yesterday.

The won closed at 903.60.

Indian rupee: Inflation probably held at 3.07 percent in the week ended Oct. 20, the median estimate of 15 economists surveyed by Bloomberg showed. The Ministry of Commerce & Industry will release the report today at noon in New Delhi. The Reserve Bank of India will issue foreign-exchange reserves data for the week ended Oct. 26. It will release the report at 5 p.m. in Mumbai.

The rupee was at 39.3262 against the dollar.

Thai baht: The Bank of Thailand will release at 2:30 p.m. in Bangkok its data on reserves for the week ended Oct. 26. The central bank said last week reserves rose to $81.8 billion in the week ended Oct. 19, the most since Bloomberg began to compile the data in July 1998.

The baht traded at 33.95 in onshore trading, according to data compiled by Bloomberg.

To contact the reporter on this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net

Pound Trades Near 26-Year High Against Dollar on BOE Rate View

Quoted from Bloomberg.com: Currencies

The British pound traded near a 26- year high against the dollar and rose against the euro on speculation the Bank of England will leave interest rates unchanged at its Nov. 8 meeting.

The pound pared earlier advances as stocks in Europe and U.S. slumped, fanning risk aversion. The currency rose to its highest since May 1981 against the dollar a day after the Federal Reserve cut its benchmark interest rate. Central bank policy makers ``cannot afford to relax'' on inflation, Bank of England Chief Economist Charles Bean said yesterday.

``Independently, sterling is still relatively strong,'' said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. ``The market chose to focus on Bean's hawkish statements, moving current sentiment away from lower U.K. rates.''

The pound traded at $2.0808 as of 2:46 p.m. in London, from $2.0798 late yesterday. It reached $2.0851, the strongest since May 18, 1981. Against the euro, the pound strengthened to a four- week high of 69.33 pence, from 69.66.

Cole predicts the pound will end the year at $2.09, higher than the $2.03 median forecast of 42 strategists and economists compiled by Bloomberg.

The FTSE 100 stock index fell 2.2 percent and the Dow Jones Industrial Average fell or 1.6 percent

At 5.75 percent, the Bank of England's main interest rate is the highest among the Group of 10 nations, making it a target currency for carry traders.

Interest Rates

The U.K. central bank has raised the cost of borrowing three times this year by a quarter percentage point. The bank will keep its benchmark rate unchanged at its next meeting on Nov. 8, according to the median estimate from 37 economists in a Bloomberg News survey.

``There's going to be a significant impact from energy prices going forward in the early part of next year,'' Bean said in London. ``We're cautious about prospects for inflation,'' and it is ``a bit troubling'' that measures of consumer price expectations have yet to follow the inflation rate down.

Expectations for lower interest rates in the future priced into markets already represent a ``de facto loosening'' of monetary policy, Bean said in comments after his speech.

He is the fourth policy maker since Governor Mervyn King spoke on Oct. 9 to suggest that the rate will remain on hold.

`Watch And See'

King said the rate-setting committee is gauging the effects of higher credit costs on the economy while keeping up their guard on inflation. David Blanchflower said yesterday the bank is taking a ``watch and see'' approach on whether to lower the U.K.'s benchmark rate and his colleague Kate Barker signaled on Oct. 30 it isn't ready to cut borrowing costs.

U.K. manufacturing expanded at the slowest rate in almost a year in October, an industry report showed. An index based on a survey of more than 600 manufacturers by the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc fell to 52.9 from a revised 54.7 in September, Reuters said today.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Forexnews.com

by Korman Tam

Quoted from:

Forexnews.com

The FOMC lowered its benchmark Fed Funds rate by 25-basis points to 4.5%. The accompany policy statement tempered expectations for another rate cut over the remainder of the year, adopting a more neutral stance and emphasizing that risks to inflation and growth are currently balanced. “Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance”. Further, the Fed said today’s 25-basis point cut, in conjunction with the September ease, “should forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time”. The Fed cited recent increases in energy and commodity prices as “roughly balancing the downside risks to growth”. The vote was not unanimous with KC Fed President Hoenig voting in favor of leaving rates unchanged.

Economic growth for the third quarter exceeded consensus forecasts, as the economy expanded by 3.9%, versus calls for 3.0% GDP growth and up slightly from the previous quarter at 3.8%. The US economy posted its strongest growth rate since Q1 2006 – thereby bringing to question how aggressively the Fed will continue to ease rates over the coming months. The Q3 PCE price index was higher than expectations at 1.7%, albeit sharply lower than Q2, while core PCE edged up to 1.8% versus 1.4% from the prior quarter. A worrying, but not unexpected component of the GDP report was a large drop in housing investment, which plunged 20.1%, accelerating from an 11.8% decline in Q2.

Meanwhile, manufacturing contracted with the Chicago PMI at 49.7 for October falling short of consensus expectations of 53.0 and down from 54.2 in September. The decline marked the lowest reading in 8-months, while the employment index was down to 49.5.

The dollar continues to struggle against the major currencies, with the exception of the yen – falling to fresh all-time lows versus the euro at 1.4503 and new multi-decade lows versus the sterling, Loonie and Aussie. The market remains bearish on the greenback despite a combination of strong US economic growth data and a neutral tone adopted by the FOMC – suggesting overwhelming market sentiment for further losses to come. The next key piece of data to potentially impact both the December FOMC policy decision and the dollar’s fate will be Friday’s October labor report.

JPY Slumps following BoJ

The Bank of Japan left policy unchanged when it announced its decision in early Wednesday trading. The BoJ voted 8-1 to keep interest rates at 0.5%. Governor Fukui said that “downside risks to Japan are also increasing compared with upside risks”. He added that “the environment overseas has changed and uncertainty over the global economy persists”. Fukui said that “if the risk factors materialize, the global economy could worsen more than anticipated, and an adverse impact on the Japanese economy would be inevitable”. The BoJ also reduced its forecasts for growth and inflation, expecting the economy to grow at 1.8% this year, downwardly revised from 2.1% while inflation remains flat compared with a 0.1% estimate from earlier in the year.

European Markets Fall On Disappointing Earnings, Weak Commodities - European Commentary

Source: RTT News : European Market Update

The European markets fell for the first time in four days on Tuesday, as disappointing earnings reports from companies such as Dassault Systemes, UBS and Royal KPN hurt investor sentiments and falling crude oil and metal prices hit energy and mining stocks.

Investors also waited warily for a decision on interest rate policy from the U.S. Federal Reserve, which is meeting Tuesday and Wednesday. The Fed is widely expected to cut rates by a quarter percentage point to 4.5%.

Crude for December delivery fell $1.59 to $91.94 a barrel on the New York Mercantile Exchange after Mexico's state oil company said it will resume production and on expectations that a U.S. government report will show crude supplies grew last week.

The FTSEurofirst 300 index of pan-European blue chips closed 0.42% lower at 1,581.58 points, while the narrower DJ Stoxx 50 index fell 0.53% to 3,852.31 points.

Around Europe, the U.K.'s FTSE 100 index dropped 0.70% to 6,659.00, while France's CAC 40 index slipped 0.55% to 5,803.93 and Germany's DAX index fell 0.40% to 7,977.94.

Dsesign software maker Dassault Systemes dropped 6.4% after the company reported a 24% decline in third quarter earnings and cut its full year earnings and sales forecast.

UBS, Switzerland's, slipped 1.6% after the company reported its first quarterly loss in almost five years on writedowns tied to the U.S. mortgage market.

Royal KPN, the Netherlands' largest phone company, slid 5.6% after the company's third quarter earnings and sales missed analysts' estimates.

Michelin, the world's second largest tiremaker, dropped 6.6% after the company's third quarter sales trailed analysts' forecast.

Heavily weighted oil stocks edged lower after crude oil prices retreated. BP, Europe's biggest oil company, dropped 1.8%, while Royal/Dutch Shell, the second biggest, slipped 1.5% and Total, the third biggest, fell 0.6%.

Similarly, mining stocks lost ground after copper, nickel, lead, zinc and aluminum prices declined in London. BHP Billiton, the world's biggest miner, slipped 2.7%, while Rio Tinto, the third biggest, fell 1.6% and copper miner Antofagasta dropped 3.1%.

Continental, Europe's second largest tiremaker, fell 1.9% after the company said it will raise 1.5 billion euros from a share sale to help fund its purchase of Siemens's auto-parts unit.

On the other hand, Vinci, the world's biggest construction company, surged up 5.1% after the Financial Times reported that French billionaire Francois Pinault and ArcelorMittal may join forces to make a bid for Vinci.

USD Slumps on Consumer Confidence

Quoted from Forexnews.com

 by Korman Tam

The beleaguered dollar found no reprieve on Tuesday, remaining mired near all-time lows versus the euro at 1.4436, and 26-year lows against the sterling just shy of the 2.07-level. Dragging the greenback lower today was a report from the Conference Board revealing a dip in consumer confidence to a new 2-year low at 95.6 for October, compared with a downwardly revised 99.5 from September. The expectations index for October fell to 80.1, versus a revised 85.0 from a month earlier.

The currency market will likely consolidate in the coming session as traders take to the sidelines ahead of Wednesday’s FOMC monetary policy decision and accompanying statement. Although the Fed funds futures are fully discounting a 25-basis point rate cut to 4.50% tomorrow, the focus will be on the language used in the subsequent policy statement. Further, the dollar may regain its footing against the majors if the Fed instead opts to leave rates unchanged at 4.75% while signaling a cut at its December meeting.

Prior to the Fed announcement, several key pieces of economic data will provide additional gauges on the state of the US economy. Growth in Q3 is estimated to fall to 3.0%, down from 3.8%. The core PCE is seen edging up to 1.5% from 1.4%, while the headline Q3 PCE is forecasted to fall to 1.5% from 4.3%. The October ADP private sector payrolls, often viewed as a proxy to the more important non-farm payrolls, are seen up slightly to 60k versus 58k. Meanwhile, the October Chicago PMI is estimated to slip to 53.0, down from 54.2.

GBP Rallies amid Tempered Rate Cut Expectations

The sterling climbed to its highest level in 26-years against the greenback while rallying sharply versus the yen prompted by overnight comments from a Bank of England board member. The BoE’s Barker pondered whether conditions have changed significantly since August that would force the Bank’s hand next week. Given the recent slate of upbeat UK economic reports, we do not expect the BoE to alter its stance when it deliberates monetary policy next week.

Cable remains buoyed near its multi-decade highs, pulling off slightly from beneath the 2.07-level. Resistance is seen at 2.07, followed by 2.0740 and 2.0775. Subsequent ceilings are eyed at 2.08 and 2.0850. Meanwhile, on the downside support begins at 2.0650, followed by 2.06 and 2.0560. Additional floors will emerge at 2.0530 and 2.05.

Euro Hovers near All-Time High

The euro remains buoyed near its record high versus the dollar near the 1.4440-level. Germany’s October unemployment rate was unchanged at 8.7%, while the unemployment change was -40k, versus -30k from September. In the Wednesday session, traders will digest Germany September retail sales, Eurozone October business climate, consumer sentiment, industrial sentiment, unemployment rate and flash inflation.

EURUSD continues to hold steady above the 1.44-level, with resistance emerging at 1.4440 and 1.4470. Subsequent ceilings are seen at 1.45 and 1.4550. On the downside, support begins at 1.44, followed by 1.4380 and 1.4350. Additional floors are eyed at 1.43, backed by 1.4250 and 1.4220.

Japanese Stocks Close Mixed Ahead Of Rate Decision

Quoted from RTTNews - Global Market News, Asian Market Update, Market & Sectors, Forex Audio News....

Japanese Stocks Close Mixed Ahead Of Rate Decision

10/30/2007 5:57:26 AM Tuesday, Tokyo shares closed mixed as investors lock in profits ahead of the U.S. Federal Reserve's and Bank of Japan's rate decisions. The Nikkei 225 Stock Average closed down 47.07 points or 0.3% at 16,651.01, recovering from the day's low of 16,492.56. The broader TOPIX index edged up 0.72 point to 1,607.21.

At around 6:13 p.m. local time, the dollar was quoted at 114.65-114.66 yen, up 0.47 yen from Monday's 5:00 p.m. quotes of 114.18-114.20.

On the economic front, the seasonally adjusted unemployment rate rose by 0.2 percentage point to 4.0% in September from the previous month. The number of jobless people totaled 2.69 million. Meanwhile, average monthly spending per Japanese household climbed a real 3.2% in September from a year earlier to 281,448 yen, a government report indicated.

Mitsubishi Motors rose 2.0% after it posted an operating profit in the fiscal first half to September, while Yamaha Motor gained 1.6% after it reported a 13% increase in net profit for the first nine months. Among other automakers, Nissan Motor added 0.6%, Mazda Motor jumped 2.3% and Suzuki Motor advanced 1.7%. But Toyota fell 0.3%.

Nippon Steel slipped 1.3% despite posting a 7.5% growth in fiscal first-half net profit. Kobe Steel shed 1.0% after its first-half net profit fell 8.8%.

Oil stocks surged after crude prices rose to record highs. Nippon Oil rose 1.6%, Nippon Mining Holdings gained 0.3%, and Showa Shell Sekiyu KK advanced 1.73%.

Among banks, Mitsubishi UFJ Financial Group climbed 1.8%, Sumitomo Mitsui Financial Group added 0.3%, and Resona Holdings surged 2.6%. Mizuho Financial Group lost 0.3%.

Gainers among high tech stocks included Fujitsu 0.2%, Matsushita Electric Industrial 1.4%, and NEC 0.9%. Losers in the sector included Advantest 3.4%, Tokyo Electron 0.6%, Kyocera 0.1%, Fanuc 1.9%, and Sony 1.4%.