Market review for 01 – 05. 12, 2008

In the beginning of the last week, the dollar continued to strengthen, against main currencies as well as the euro, due to the increased investors’ demand for the US Treasury obligations, considered to be more secure in the current circumstances of the world stock markets’ fall and global instability. Euro also incurred losses against the dollar due to the expectations that the ECB would reduce the principal rate. Similarly, the expectations regarding the reduction of the principal rate by the Bank of England at the Thursday meeting had a negative influence on the pound. At the same time, the fundamental data releases, published in the beginning of the week, did not have a significant influence on the dynamics of the currency pairs. Thus, the ISM manufacturing index in the US industrial sector, which was released on Monday, dropped until the 36.2 mark for November and reached its minimum level from 1982.

Already on Tuesday the dollar situation changed, and the American currency weakened against the major currencies due to the increased activity at the world stock markets. Another reason for the dollar weakness was the measures that a number of central banks took in order to stimulate the economical growth. The dollar was pressured as well by the increased oil prices. On the same day the Bank of Japan left a principal rate unchanged at the level of 0,30% during the meeting on Tuesday. As a result the yen dropped against the main currencies, but then managed to return partly its lost positions.

And the Reserve Bank of Australia announced the reduction of the principal rate for 100 basic points until the level of 4,25%. Since the reduction was greater than the forecasts, the Australian dollar lost some of its positions.

In the middle of the week the European and American fundamental releases were very weak. The US ISM non-manf. Composite index for November, published on Wednesday, dropped to 37.3% against the forecasted 42%. The Euro zone PMI indices turned to be a lot lower than expected. But the euro reduced against the dollar not only due to the weak fundamental releases, but also because of the drop of the European stock indices.

According to the released data on Thursday, the ECB reduced the principal rate by 75 basic points until the level of 2,50%, while the experts predicted a reduction by 1.00%. And the decision of the Bank of England matched the forecasts of the analysts, and the Central Bank reduced the principal rate for 1,00% until the level of 2,00%, which happened to be the minimal mark from 1951. On the same day the GBP/USD pair renewed its last 6-year minimums and lost around 300 points by reaching a $1,4468 mark.

It should be mentioned that on the last day of the trading week, the employment indicator of the US non-farm economy sector dropped for 533 thousand instead of expected decrease for 330 thousand. The currency pairs finalized the week at the following levels: EUR/USD – at the level of 1.2714, the GBP/USD pair – at the mark of 1.4737, and USD/JPY – at the level of 93.