October 31st 2008, USD Rebounds Across The Board

USD

The USD rebounded across the board on Thursday as investors apparently have digested the
impact of the Federal Reserve’s interest rate cut a day ago. For a clear sign that currency
trading is being affected because of sentiment from the belief that further central bank
intervention and economic stimulus packages are on the horizon, one only has to look at the
Advanced GDP results in the U.S. yesterday. The number for the Advance GDP came in with
a minus -0.3% result and while better than the forecasted minus -0.5%, it nevertheless was a
contraction and certainly not a figure many investors would typically hang their hat on. Also
the Unemployment Weekly Claims statistics showed a result of 479K, slightly above the
projected 476K, again not an impressive outcome. Yet the USD continued to show strength,
which illustrates that investors are looking at the upcoming interest rate decisions that are due
from Europe next week. As an uneasy calm has returned to the marketplace and fears subside
of a 1930’s type of financial catastrophe, investors nonetheless have no doubt begun to brace
themselves for the possibility of a prolonged international economic downturn. The USD may
continue to benefit because of its status as a safe haven as many concerns abound regarding
global financial institutions and their transparency.

Today the U.S. will release a handful of reports, which may garner some interest from
investors going into this last weekend before the U.S Presidential election. The Chicago PMI
reading will be published and is expected to show a 48.5 result compared to the previous
number of 56.7. Also the Revised University of Michigan Consumer Sentiment figure is due
and is forecasted to be 57.7. Other data being released will be the Personal Spending and the
Core PCE Price Index information. There has been little positive economic data from the
U.S. since the financial crisis exploded onto the scene in the past month, and it is hard to
believe that the Revised Consumer Sentiment number will anything but negative. However,
investors have widely discounted bad economic sentiment and are paying more attention to
the speeches of government officials and their policy statements. U.S equity markets
stabilized yesterday having a positive day, but the stock markets continue to appear uneasy.
The USD will most likely trade today towards the strong side of a consolidated range.

EUR

The EUR lost ground to the USD on Thursday as the economic picture from Europe
continued to offer little in the way of a positive outlook. The broad European Consumer
Confidence reading was released and it came in worse that expected with a minus -24 reading
compared to the already negative forecast of minus -21. Today Europe will release its broad
Unemployment Rate and it estimated to be unchanged at 7.5%. Also on the agenda, Germany
is due to release its Retail Sales figures and it is expected to show a decline of -0.1%. The
broad European CPI Flash Estimate will also be presented and it forecasted to be 3.2%. The
crux of the matter for the EUR remains that the European Union is facing a slowing economy
and still maintains a high interest rate of 3.75%. It is widely expected that the ECB will lower
its interest rate when it meets next week by half a basis point matching the move made by the
Federal Reserve. With inflation now perceived to be less of a threat to the economy, investor
expectations are clearly anticipating the European Central Bank’s monetary policy to reflect
the negative changes in the financial world. The EUR may continue to find itself today to be
under pressure.

GBP

The Sterling found itself back on a downward slope in trading yesterday as the U.K.
continued to produce less than promising economic data. The Nationwide HPI showed yet
another drop in the value of homes coming in with a minus -1.4, slightly above the
expectation of minus -1.5 but nevertheless - not good news. Also the GfK Consumer
Confidence number produced a reading of minus -36, slightly worse than the already poor
expectation of minus -35. The U.K. will not release any economic news today and perhaps
that is for the better bearing in mind that it has been quite some time since positive data has
been published. The Bank of England will be meeting next week and they are clearly in a
position in which it is not a question of if - but by how much they will cut their interest rate.
The Sterling remains on uneasy footing and will continue to trade in an uneasy manner.
JPY

The Bank of Japan cut their key interest rate by .20% in an announcement early this
morning bringing their interest rate to .30%. The rate cut was slightly less than expected.
Global equity markets turned in mixed results yesterday, and the results of this showed on
JPY which turned in unimpressive numbers, losing some ground to the USD. Until the
decisions come from the European central bank next week, the JPY may prove volatile.

Written by: Robert Petrucci

Bforex Chief Commodity Expert and Forex Analyst

Robert@BForex.com Please contact Robert Petrucci directly with any questions or

comments you may have about the analysis.

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