The single currency fell for the sixth day in seven against the dollar, hitting a session low of $0.9013, after the ECB's Chief Economist Issing said that dampen the markets expectation of another rate cut on October 25. Issing said that the Central Bank should focus on restraining inflation and the ECB President Duisenberg, in a separate statement said that controlling inflation remain bank's main focus . Overall market sentiment was not improved by Fed Chairman Greenspan's testimony to Congress indicating the US economy faced weakness. The White House's Lindsey said today the US will probably see "small negative" GDP in Q3, therefore making it likely the US economy will have 2 quarters of negative GDP and officially be in a state of recession. Further fueling market concern about the US economic outlook that sent the stocks lower were confirmation that 31 of Senator Daschle's staff tested positive for anthrax exposure and a new possible case of anthrax contamination of New York Governor Pataki's Manhattan offices. Eurozone HICP fell to 2.5% y/y in September from the previous 2.7%, drawing near the ECB's 2.0% interest rate target. The single currency can continue to weaken vs. the dollar after Friday's Ifo business climate index, which is expected to decline to a new 5-year low of 88.1 from the previous 89.5. A weak Ifo reading will renew the pressure on the ECB to cut rates to address falling demand, and should the ECB choose to prioritize price stability over growth, the euro will likely suffer as a result. Upside capped at 90.65, 90.90 and 91.25. Support stands at 90.10, 89.90 and 89.60.
The dollar eased vs. the yen trading around 121.25, after reaching overnight levels of 121. 79 just a bit off its one month high reached on Tuesday, amid markets speculation that Japanese authorities would once again attempt to depreciate their currency by buying foreign assets. Finance Minister Shiokawa stated his desire the Bank of Japan would halt a protracted decline in prices by continuing its monetary policy easing. Shiokawa's comments followed those from Bank of Japan governor Hayami who said it was inappropriate for Japan to set a target on providing liquidity and that monetary easing would have little impact while Japan's structural problems remained. President Bush urged Japan to accelerate its economic reform package, including disposal of bad loans. Shiokawa said that 30 tlrn yen bond issuance cap may not apply to war on terrorism. Shiokawa added that he is still not sure how much money Japan will need to help the US led military campaign against Afghanistan. Asia Pacific Economic Cooperation Forum decided to start in November the next round of multilateral talks under the WTO. Resistance is seen at 121.80, 122.0 and 122.50. Support at 121.0, 120.50 and 120.15.
US stocks plummeted on new cases of anthrax, shrugging off the upward momentum generated by positive earnings reports from IBM and Intel. Dow plunged by 1.6% or 151 points to 9232 and NASDAQ fell by 4.4% or 75 points to 1646 in its largest daily drop since April 23. Major economic data due this week from the US include the Philadelphia Fed Survey, CPI and international trade. Economists in a recent survey expected the Philadelphia Fed Survey due for release tomorrow to plummet to -15.3 in October from -7.3 in September, corroborating the dire straits of the manufacturing sector which has contracted for 10 straight months by remaining below the zero level. In a separate poll, economists predicted that Friday's release of CPI will reflect the rise in oil prices and climb to 0.3% in September from the previous 0.1%. Most economists believe that inflationary pressures remain subdued because of the economic slowdown. Mild inflation will allow the Federal Reserve to continue to ease monetary policy to address the US contraction that likely worsened after the September 11 attacks. Key indicators from the Eurozone are the ECB monthly bulletin and Germany's IFO business climate survey. From the UK, markets await economic data this week including money supply, balance of trade and retail sales.