Sep 11 2008
EURO-ZONE Growing Slower Than Expected
Yesterday, after a small setback the day before, the greenback bounced back to continue its appreciation against all major currency rivals. The dollar extended gains as it was also favored by the declining price of Crude Oil, climbing to a fresh one-year high versus a basket of rival currencies. Also helping the USD was the announcement of a reduction in the growth forecast (GDP) for the Euro-Zone, which was downgraded from 1.7% to 1.3% for this year. As a result, the EUR fell as low as 0.4% to 1.3951 reaching an 11-month low versus the USD. Against the JPY the greenback went up 0.6% at 107.44.
The dollar is also gaining support from the belief that the U.S. economy may be more resilient than most economies whose countries were further behind in terms of economic readjustment in the wake of the global credit crisis. This is precisely today’s case. Despite disappointing results on the third quarter as a consequence of the Lehman Brothers investment bank downturn, the greenback largely ignored the results and rose against the majors.
Looking ahead today, the most important financial indicator scheduled from the U.S economy is the Trade Balance. Analysts forecast that the U.S. deficit will grow from -56.8B in June to -58.0B in July. Another indicator for today is the Import Price Index, a measure of the change in inflation for imported goods; it is expected to come in -1.6%. On top of those two indicators, the Unemployment Claims report, one of the most influential USD indicators, is also forecasted to show a slight improvement in jobless Americans from last week’s mark of 444K to 440K, meaning a drop of four thousand fewer jobless Americans. We are also expecting a hawkish speech from the Fed’s Vice-Chairman Donald Kohn which will add volatility to the market. As most indicators are expected to have a positive impact, this should make the greenback continue its momentum during today’s trading session. Traders should anticipate high volatility around the time of each announcement.
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