Forex Daily

The US dollar fell against the euro today, as the euro gained ground from its month low earlier this week. It is thought that investors still have concerns over the US economy and have shifted to the euro as they await European economic data released later today.

Many analysts are expecting that the European sentiment index will show a down turn in the economic growth and give the European Central Bank (ECB) little scope to lower interest rates despite high inflation rates.

The pound lost ground against the other currencies on Tuesday after a report by the CBI (Confederation of British Industry) reported that sales on UK’s high streets were falling at an alarming rate.

In the survey the CBI stated that a huge 61 percent of people who were asked said that their retail sales had fallen compared to the same time last year, while only 25 percent reported a rise in sales.

The dollar fell on Monday, following promising performance after optimistic US housing and consumer data last week. Investors are still wary about the fragility of the US economy opting to play it cautious, as an onslaught of economic data that is released this week.

Oil prices were also a factor in the dollar’s slump, as crude oil prices rose after a seven week low.

The National Housing Federation has released a report that says that UK house prices are set to rise 25% by 2013. The report sees prices falling 4.4% in 2008, then by another 2.1% in 2009, a slight recovery in 2010 and rising to over 9% in 2012 and 2013 respectively.

People living longer, delaying marriages and an increase of couples getting divorced have all contributed to the rise in demand for homes. Although there are concerns over how accurate the forecast can be, there is a worry that new homes that are being built will not meet the demand.

The euro fell against the dollar as German consumer confidence hit a new low. Luckily for the Euro a quiet trading section meant that the losses were limited.

The GFK market research group stated that the German consumer climate index is forecast to lower to 2.1 points in August; down from 3.6 points in July and its lowest level since June 2003. The figure is far less than the Thomson News poll of economists, which forecast the consumer climate index at 3.5 points.

The Honda Motor Company today announced that it had seen an unexpected rise in profits over the last three months. But the company is still predicting a fall in profits for the whole year.

The net profit for the group between April and June was £848 million (179.6bn yen), and was up 8.1% compared to the same stage last year.

These figures came in spite of a revenue fall of 2.2% due to the strengthening Japanese currency. Honda still maintain that its forecast for an 18% fall in net profit for the whole year is still practical, despite the better than expected Q2 figures.

The dollar fell against the euro and yen, as worries about the state of the US financial market due to earning reports from banks being published this week.

The dollar could also face a more worrying period as a glut of US economic news comes out this week. Traders are anxious to hear speeches from the Philadelphia Fed today and New York Fed and the SEC chairman on Thursday in front of a House Financial Committee.

Key US data out this week includes June’s existing home sales on Thursday and new home sales data on Friday.

Top forecasters have suggested that the outlook for the UK economy next year is bleak as business confidence is fading due to recent results.

Ernst & Young Item Club has predicted that growth in 2009 will be just 1%, as living costs rise and falling house prices have a negative effect on consumer spending. They went on to say that employers confidence had fallen to its lowest level since 1996.

A minimal growth of disposable income combined with a sharp rise in food and fuel costs, means that spending on non-essential items will be cut.

The US government announced that it plans new measures to bolster the two largest US mortgage companies, Freddie Mac and Fannie Mae. The new measures will call on the US Congress to increase the firm’s access to credit, and permit the Treasury to purchase shares in the companies when needed.

The Federal Reserve has also stated that it would lend to Freddie Mac and Fannie Mae if additional funds were required.

The euro continued to climb higher against the dollar today, ahead of the European Central Bank’s decision about interest rates tomorrow. It is widely expected that the ECB will raise interest rates, the first time since June 2007.

The dollar had seen a brief boost on Tuesday after better than expected ISM manufacturing data was released, but this was short lived as traders remain unconvinced that the US economy has turned a corner.