Weekly report for 10 – 14. 11, 2008

During the whole week the situation at the stock markets influenced the investors’ willingness to take risks. Thus, on Monday, the yen was temporarily supported by the main US indices, which were below a zero level. This fact provoked investors to dispose of the high liquid assets, which were financed in yen. Also on Monday China has announced the economy support plan at the cost of $586 billion, which pressured the yen. Therefore at the beginning of the week the pair EUR/JPY dropped for more than 400 points and reached the level of 124.21, and the rate of GBP/JPY decreased for more than 500 points until the 152.05 mark.

The European currency was under pressure, since at the San Paulo conference the ECB President, Mr. Trichet announced that the inflation reduction could allow central banks to continue decreasing principal rates for the economic recovery. And on Tuesday, the EUR/USD rate dropped almost for 2 cents and reached the 1.2506 level.

The British pound was under a negative influence from the UK economic news. According to the report, published on Tuesday, the UK home sales dropped and reached a minimum mark in the last 30 years. And according to the prognosis, the British GDP would decrease until 1.3% next year. After the Wednesday’s publication of the Bank of England quarterly report and the commentary of the Central Bank’s president, Mervin King, it became clear that the further reduction of the principal rate should be expected in England. Accordingly the GBP/USD pair renewed its minimum level against the dollar for the last six years at the level of $1.4892. The sterling also established its new historical minimum against the euro at the range of 84.11 pence and lost during the day around 3.1%. On Thursday the GBP/USD pair set a new 6-year minimum at the level of $1.47600.

On Wednesday the US Secretary of the Treasury, Henry Paulson, presented a modified crisis management plan. According to this plan the monetary funds should be redirected from the banks for stimulation of the customer demand. As a result the investors began to actively dispose of the high risk assets, which in turn supported the dollar against the European currencies, due to the increasing demand for the safe assets. Market participants were looking forward towards the G20 meeting, which took place in Washington on November 14-15. This meeting was aimed to discuss the possible ways out of the global financial crisis.

The publication of German GDP on Thursday showed a slowdown in its growth rate, which resulted it a drop of euro against the dollar until its 2-year minimum at the level of $1,2384. This first recession of the German economy for the last 12 years reinforced the investors’ confidence regarding the further reduction of the ECB principal rate.