Currency news - Technical dollar demand provides protection

Technical dollar demand provides protection - 30-09-08

Despite expectations of congressional support for the US deal, there were renewed stresses on Monday as liquidity issues continued. Global central banks were forced to respond with a further massive injection of liquidity into markets. The banks announced that the dollar liquidity swaps would be increased to US$620bn from US$290bn previously.

The economic data was overshadowed by political negotiations and the markets were jolted severely again later in US trading as the House of Representatives rejected the US rescue plan. Wall Street weakened sharply with daily losses of close to 7% for the Dow Jones index while there was further intense stresses in credit markets. There will be increased fears over the economy and strong expectations that the Federal Reserve will be forced to cut interest rates.

Confidence in the Euro-zone will continue to be damaged by banking-sector difficulties, especially with economic confidence in the region also continuing to weaken. There will also be speculation that the ECB will bring forward an interest rate cut, especially with business confidence also continuing to deteriorate.

The Euro recovered sharply to highs above 1.4550 in New York before weakening back to 1.4330 on Monday in very nervous trading.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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