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European Fundamentals Fail to Impress, Raising Bets For Rate Cut by the ECB, BoE, and SNB

By , Chief Currency Strategist
20 November 2008 11:51 GMT

11-20 FXH1

Fundamental Headlines

• Auto Makers' Rescue Drive Stalls – Wall Street Journal
• Ballmer Kills Hopes for Bid, Pummeling Yahoo Shares – Wall Street Journal
• Iceland secures $5.1bn bail-out – Financial Times
• Record Options Trading Slows as Hedge Funds Fold, Prices Surge – Bloomberg
• GE Talking With Asia Sovereign Funds to Add Investors – Bloomberg

• GBPUSD – Retail spending in the U.K. fell 0.1% in October following a 0.5% decline in the previous month, which was much stronger than the 0.9% fall projected by economists. The breakdown of the report showed that consumption of household goods plunged 3.4% from the previous month, followed by a 1.5% decline in clothing and footwear. Fading employment opportunities paired with falling home prices continues to take a toll on consumers, and conditions may only get worse over the coming months as credit conditions remain far from normal. Meanwhile, public-sector borrowing in the U.K. increased 1.4B in October, which was much higher than the 0.4B rise projected by economists, and was followed by a 4.9B decline in public finances. The data suggests that the budget deficit for the U.K. will continue to widen over the coming months as policymakers raise fiscal objectives to stem further downturns in the economy, and will be an ongoing concern for the Treasury as tax revenues continue to weaken in light of the credit crisis. Discuss the topic and your trade ideas in the GBP/USD Forum.

• EURUSD – The German producer price index slipped to 7.8% from 8.3%, which crossed the wires slightly stronger than the 7.3% estimate projected by economists. The breakdown of the report showed that fuel prices fell to 3.3% from 11.4% in the prior month, while utility costs unexpectedly increased to 26.3% from 23.4%. Falling oil prices have certainly helped to alleviate price pressures throughout Europe, and will certainly allow the European Central Bank to ease policy further as growth fears intensify. Discuss the topic and your trade ideas in the EUR/USD Forum.

• USDCHF – The trade surplus for Switzerland unexpectedly widened to 1.84B from a revised reading of 1.46B in September due to a 5.5% decline in imports. Meanwhile, exports fell 4.6% in October, which suggests that demands from the global economy may remain subdued well into the next year as the Euro-Zone, Switzerland’s biggest trading partner, slips into a recession. The Swiss National Bank stated that the economy may contract in 2009, which could lead policymakers to lower the benchmark interest rate further over the coming months in order to avoid a severe downturn in the economy. For more news and resources, visit the new Swiss franc Currency Room.
11-20 FXH2

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20 November 2008 11:51 GMT