• The dollar fell on Wednesday pressured by Fed policy-easing speculation as the ISM's manufacturing PMI fell more than expected. The yen was today's best performer as risk aversion increased as equity markets fell.

    Sterling declined against all major currencies and reached an all-time low against the euro. Crude oil reached a record $100 a barrel and gold soared to the highest ever.
  • The EUR/USD rose today as December's ISM manufacturing report indicated the risk of a contraction in the US manufacturing sector. Minutes from the December FOMC meeting showed there is marked deceleration in consumer spending, that the housing slump could be deeper and more prolonged, and that credit and economic risks may require substantial easing. Resistance exists in the 1.48-area and support in the 1.45-area. Friday's employment report will determine the pair's short-term direction.


Financial and Economic News and Comments

US & Canada

  • The ISM manufacturing index unexpectedly fell the most in almost five years, reinforcing speculation the Federal Reserve will cut interest rates again to prevent a recession. The ISM manufacturing index fell to 47.7 in December versus 50.8 in November, the Institute for Supply Management said. (The 45-50 levels signal contraction in the manufacturing sector.) The production index declined to 47.3 from 51.9 and the new orders index fell to 45.7 from 52.6. The employment index increased to 48.0 from 47.8. The prices paid index rose to 68.0 from 67.5, suggesting continued upward pressure on inflation.


  • November's US construction increased a less-than-expected 0.1% m/m, private residential building fell 2.5% m/m, business building rose 1.7% m/m, and public construction increased 2.5% m/m. The decline in home building is offset by large increases in business and state/local building, the Commerce Department said.
  • The US economy in 2008 will be somewhat more sluggish than anticipated in October, minutes from the December 11 FOMC meeting showed. FOMC policy makers agreed on the need to remain exceptionally alert to economic and financial developments and their effects on the outlook….

    Members would be prepared to adjust the stance of monetary policy if prospects for economic growth or inflation were to worsen.


  • Sterling was pressured by a CBI report that the UK economy is especially vulnerable to global crunch because of UK dependence on its financial sector.
  • The EMU manufacturing index fell to 52.6 in December from 52.8 in November, the Royal Bank of Scotland Group reported. A separate gauge of growth in the European service sector dropped to 53.2 in December, the lowest since June 2005, from 54.1 in November.
  • UK manufacturing growth slowed more than forecast in December, increasing speculation the Bank of England will cut interest rates for a second time. The UK manufacturing PMI in December fell to 52.9, compared with 54.3 in November, the Chartered Institute of Purchasing and Supply said.


  • The yuan rose to the strongest since a peg to the dollar was scrapped in July 2005, after the People's Bank of China reiterated its pledge to maintain a tight monetary policy this year.

FX Strategy Update