Risk aversion prevails with less volatility…

Currencies Direct October 28th 2008 - 2 minute read

Risk aversion prevails with less volatility…

Safe haven flows driven by risk aversion again boosted the dollar and yen yesterday but market activity was less volatile than that seen last Friday. The yen traded as low as 91.93 verses the dollar but remained above the 13 year low seen on Friday (90.95) and rose to 113.61 verses the euro its highest level since May 2002. The dollar set a fresh 2 ½ year high verses the euro at 1.2332.

Finance officials from the G7 earlier issued a statement saying they were concerned about the excessive volatility of the Japanese currency and said they would continue to monitor markets closely and cooperate as appropriate, raising prospects for a coordinated intervention.

Equity markets also enjoyed some rest bite from the recent turmoil. The FTSE closed just 30 points lower on the day having traded down 218 points at one point. The Dow closed down 2.4% recovering some lost ground suffered during the day. Overnight in the Far East both the NIKKEI (up 6.4%) and the HANG SENG (up 14.3%) posted strong gains that hopefully will inspire and encourage traders in European and American markets today.

If the ECB required more evidence that a further cut in interest rates is urgently needed it came in the form of the German IFO. The German corporate sentiment index fell in October to its lowest level since May 2003 on expectations the export sector will suffer a big hit from weakened foreign demand. The Munich-based IFO economic research institute said that its business climate index, based on a monthly poll of around 7,000 firms, fell to 90.2 from 92.9 in September and well below the 91.0 expected. The latest German IFO and euro-zone M3 figures add further weight to the view that the ECB is set to cut interest rates aggressively.

In the US, sales of new homes increased during September by 2.7% as builders slashed prices and inventories declined. This somewhat encouraging news follows better than expected figures for existing home sales released last week.

In contrast to corporate sentiment the German GfK consumer confidence index for November released this morning increased to 1.9 from 1.8 in October much better than the 1.5 reading forecast. Consumers in France however are less optimistic as their consumer confidence index fell to minus 47 for October compared to minus 44 in September and worse than the minus 46 expected.

Major data releases due today are the UK CBI distributive trades report for October at 11:00 GMT, US House prices for August 13:00 GMT and October US Consumer confidence index.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

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Currencies Direct

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