Oct 15 2008
US Retail Sales - On Tap
Following the U.S. Treasury’s announcement to inject $250 billion into financial institutions this week, the dollar finally appears to have broken its 3-day downward trend against the other major currencies. The dollar was traded at $1.3575 against the EUR at the end of yesterday’s trading session after climbing steadily to 1.3767 over the course of the last few days. The previous appreciation of the USD was largely due to the reluctance of banks to lend to one another, which spurred a surge in demand for U.S. currency funding in global money markets. However, the Federal Reserve announced that it would offer European banks as many dollars as needed, and at a fixed interest rate, which has caused the dollar to slip against the other major currencies in recent sessions as an increased supply of USD is expected to ease demand.
As a result of the aggressive steps taken to pump cash into troubled banks, investors have started to unwind safe-haven trades in the USD which has also caused a correction to the greenback’s recent upswing. However, even after the latest measures by global governments to flood banks with cash, inter-bank lending rates were not expected to fall so quickly. It is still too soon to determine whether this move is going to end up causing bearishness for the USD over the long run, or if it will help stabilize the economic system.
Traders have an important day of trading ahead of them today. Starting around 12:30 GMT and lasting throughout the day, a stream of announcements and economic indicators will be released by the American economy followed by speeches from Federal Reserve Board Chairman Ben Bernanke and a speech by FOMC member Donald Kohn about the state of the U.S. economy. With important figures such as Retail Sales and the Producer Price Index (PPI) being released, traders can expect some heavy volatility in USD trading throughout the day.
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