Dollar weakens but catches up on the Yen

 

Raj Ratna

Finotec Analysis Team

25 February 2008

 

The greenback fell against the major currencies on Friday but recovered against the Japanese Yen. Continued speculation that economic growth will slow in the US amid fears of a recession, saw the dollar headed for a second weekly decline.

The greenback gained some ground against the yen and was trading near 107.45. Technical analysis indicates cover a bounce at 106.35.

The dollar’s slump was assisted by comments from Dallas Federal Reserve president Richard Fisher on Friday. He expected to see slower economic growth rather than a deeper downturn in 2008. He went on to further describe the US economy as ‘anemic.’

US equity markets rallied strongly into the close on Friday, after news broke of a possible capital injection into one of the infamous bond insurers. The Dow Jones turned around by almost 250bps in the final half hour of trading to end higher on the day and higher on the week overall. Asian markets were stronger overnight and Europe should open firmer this morning as well, which will put some upward pressure on bond yields.

Eurozone PMI all lifted by more than expected on Friday suggesting that the Eurozone economy is handling the credit crunch well. Money markets and the futures have become less confident about the likely scale and pace of ECB rate reductions. Euro dollar touched highs near $1.4860 and was last seen trading at $1.4808 8:40GMT. Technical analysis shows buy bounce levels near $1.4705. The Aussie dollar dropped off its highs near $0.9267 and was last seen trading at $0.9250 8:40GMT.

Ahead today the market will be focused on existing home sales in the US. We also look forward to speeches from President Trichet (ECB) and Governor Mishkin (FOMC).