The single currency fell to a one and a half week lows vs. the dollar around $0.9100 amid markets expectations that the ECB will leave interest rates at 3.75% on its tomorrow's meeting, as it seems that inflation is a bigger concern than the economic growth. However, some analysts believe the European central bank may reduce rates by 25-bp following the Federal Reserve's and Bank of England's lead in the preceding week to shore up the global economy that may have suffered a fallout as a result of the September 11 terrorist attacks. Markets expect the ECB to cut rates by at least 25 bps, before the end of the year even if no action is taken tomorrow. The revisions to the Morgan Stanley Capital International global stock indices that will be implemented on November 30 will likely put downward pressure on the euro. Some analysts believe the Eurozone could see $7.6 billion worth of fund outflows that will most likely limit the single currency's rise. Initial support is seen holding at the 91.0 cent-figure, backed by 90.75 and 90.50. Resistance is eyed at 91.75, 92.0 and 92.20.
The pound was the biggest looser of the day, falling to a 5-week low of 1.4485 against the dollar, to a 3-week low of .6299 against the euro, and 2-week low of 2.3545 against the Swiss franc, in part because of the UK's involvement in the war on terrorism that sent investors fleeing for safe-haven assets and reports that the UK's Vodaphone was on the verge of acquiring more shares in Japan Telecom. The pound will likely come under pressure should tomorrow's UK Chambers of Commerce quarterly survey confirm weakness in the economy, as it is forecasted to decline to 10 from the previous 19. A poor survey will likely foreshadow a similar decline in the UK's GDP. Support is seen at 1.4450, 1.4420 and 1.4390. Upside capped at 1.4560, 1.460 and 1.4635.
The dollar is holding around 120 yen as the US stocks showed more optimism about the US economy and on confidence about the US military strikes against Afghanistan. Dow soared 188 points to 9240 and NASDAQ rose 56 points to 1626. Tomorrow's release of the Cabinet Office economy watchers survey for more indication about the health of the Japanese economy, which the White House's Hubbard described as being in serious trouble. Reflecting the falling business sentiment, the Current conditions index of the survey is forecasted to tumble to 26.0 in September from 31.2 in August to suggest that consumer spending will plunge. Some LDP members are proposing two fiscal 2001 supplementary budgets to differentiate raising expenditure in support of US military action in Afghanistan from economic stimulus package. Supplementary budget, which is likely to be complied next month will tackle job creation and assistance for the unemployed. A monthly government report submitted by Economic minister Takenaka reported that the economy deteriorated for the second month in a row. Minister said the future outlook looked gloomy, after the terrorist attack and current US military operation. Corporate earnings were revised to declining and reported worsening business sentiment. The BoJ is expected to keep the monetary policy unchanged on its Thursday/Friday meeting despite the deteriorated economic conditions. Finance Minister Shiokawa urged the BoJ to provide ample liquidity to financial markets. Shiokawa stressed that G7 finance ministers urged Japan to carry out structural reforms. USD/JPY faces resistance at 120.55, 120.75 and 121.0. Support stands at 120.20, 120.0 and 119.70.
This week's key US economic indicators include the PPI, retail sales and the University of Michigan Sentiment Survey. From the Eurozone, major data due for release consists of German CPI, German HICP, and French GDP and CPI. Analysts do not believe the European Central Bank will reduce interest rates at their monetary policy meeting on Thursday, October 11. Highlights from Japan consist of money supply data and the Cabinet Office economy watchers survey. The remaining key release from the UK this week is the Chamber of Commerce Survey for Q2.