Dollar in the Doldrums

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) November 6, 2007 -- The reason for this drop in the medium term has been the gradual weakening of
the US economy as it tries to fight the effects of the credit crunch and a
housing slump. Recent Case-Schiller data showed that US house prices fell for
the eighth consecutive month with most of the country’s regions posting
declines. On Thursday, banking stocks suffering their worse fall for years as
US giant Citigroup was battered by analysts down grades. This comes on top of
a recent 57% drop in third quarter profits compared to last year. Citigroup

are now in danger of dropping out of the top 10 US companies by market
capitalisation. Top of the list Exxon Mobil also disappointed with below
estimate earnings despite record oil prices. To cap all this negative data,
former Fed chairman Alan Greenspan went on record as saying that the US trade
gap implied dollar erosion and with an accelerating decline.

Of course the short term reason for the drop in the dollar last week was the
widely expected quarter point cut in interest rates by the FOMC. Notable
however, was the unusually hawkish language that accompanied the statement.

One economist called the wording as “subtle as a sledge hammer” because of
the bold way it indicated that this was the last cut for a while. Hawkish
comments from the MPC combined to send the USD/ GBP exchange rate within
touching distance of $2.09 to the pound.

Equity markets initially greeted the FOMC decision positively, pushing the S&P
500 past last week’s high and the Nasdaq to fresh new highs for 2007. On
Thursday, however all the good work was undone as earnings fears and the
reduced probability of further cuts brought out the sellers in force. The

fall was of the same magnitude as the mauling on the 19th of October which
brought out lots of shock headlines in the mainstream press. This time it was
hardly reported. When the press gets hold of something, it may pay to go the
other way. When the same thing is met with silence it could be time to get
genuinely worried.

Notable announcements next week are UK industrial production figures on
Monday, US Non-farm productivity figures on Wednesday, trade balance numbers
and consumer sentiment data on Friday. In all it looks a data heavy week and

we haven’t even mentioned the MPC and ECB interest rate decisions on
Thursday. The consensus estimate is that both central banks will announce no
change statements, but as ever it is the reading between the lines on the
next decision that will cause the excitement. ECB president Trichet is
speaking after the statement.

For full story, please contact editor@my.regentmarkets.com

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