Further US Action Realistic

Daily Forex Fundamentals | Written by Investica | Dec 02 08 13:06 GMT |

Although the dollar will gain defensive support at times, the fundamental outlook and aggressive balance sheet expansion will represent a major threat to medium-term currency stability. The Euro was unable to make any headway on Monday and dipped to test lows below 1.26 against the dollar. There was no relief in the US data with the ISM index for the manufacturing sector weakening further to 36.2 in November from 38.9 the previous month. This was the lowest reading since the 1982 recession while the prices component was at the lowest level for over 50 years due to the rapid decline in energy prices. There were also increased fears over the risk that consumer credit lines will be cut which would depress spending. With the PMI index at a record low, fear continued to provide defensive dollar support. There will still be increasing fears over the underlying US fundamentals which should curb currency support while Fed Chairman Bernanke stated that further interest rate reductions were possible which will reinforce speculation over zero interest rates. Bernanke also indicated that the central bank will look to buy Treasury bonds to push yields down further. Investica http://www.investica.co.uk Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.