Market review for 08 – 12. 12, 2008

On Monday the US President-elect, Barak Obama, announced the 2-year plan aimed to recover the American economy, which would include the largest capital investments into the infrastructure since 1950-s. As a result, stock indices consolidated and investors increased their interest to risk, which in turn pressured the dollar and the yen. This tendency continued during the whole week.

The stock indices growth supported the European currencies. On the first business day the EUR/USD pair managed to strengthen in the range of $1,2963. And the USD/JPY pair established a session maximum at the range of Y93,90 mark, after which started to decrease.

On Tuesday the sterling demonstrated instability and decreased against the dollar and the euro. The published report of the UK housing sales showed a reduction until the minimal level from 1978. The drop of the industrial production for October turned to be 3 times greater than expected. According to the report of the Royal Institution of Chartered Surveyors, the recession in England became deeper. The GBP/USD pair dropped until 1.4750.

In the middle of the week the stock market growth was again a result of the announced support of the leading auto manufacturers by the US government. This became a reason of a stronger pressure on the American currency, and the dollar reached its 2-week minimum against the euro. The EUR/USD rate appeared in the range of $1.3000.

At the same time due to the growth at the Asian, European and American stock exchanges, the yen slightly dropped against the dollar, the euro and the pound. Another factor of some weakness of the Japanese currency was the statement of the Bank of Japan administrator, who mentioned the possible intervention aimed to prevent “sharp fluctuations of the currency rates”.

The whole Thursday saw a dollar drop against its major competitors and one of the reasons for the dollar weakening was the growth of the oil prices. Fundamental data releases, published on Thursday, could not support the American currency at all. Number of unemployment applications turned out to be 573,000 against the forecasted 525,000. The US trading balance deficit amounted to $57.2 billion for October against the expected $53.5 billion. And the import prices dropped for November for 4.4% (YoY). Therefore the EUR/USD pair managed to establish a session maximum at the level of $1,34.

It should be mentioned as well, that on Thursday the Swiss frank incurred losses against the euro and the yen due to the reduction of the principal rate by the Central Bank of Switzerland until 0.5%, which turned to be a minimal level for the last 4 years.

By the end of the week, the US Senate still could not reach any agreement regarding supporting the auto manufacturers, which influenced the drop of the USD/JPY pair until its minimum level for the last 13 years. The week closed with the following rates: the EUR/USD pair increased and reached 1.3380 and the British pound closed below 1.50 level.