ProgressiveFX.co.uk

The pound made a nervous start to the week, Rightmove House Price Index came out better than expected at -2.3% m/m versus the prior reading of -2.9%. While the number were initially supportive for sterling house prices are still expected to fall which capped any benefit the numbers provided. Cable trade was dictated by the crosses with EUR/USD creating markets trends for the pound. President Bush failed to provide markets with a clear decision on the bail out of US car makers on Monday and linked with weaker industrial production pushed the dollar to 2 month lows. Oil prices rose to above $50 per barrel on speculation that OPEC would announce further production cuts and added to the pressure on the US Dollar. However, the main focus of the week was certainly the FOMC meeting and UK CPI data. The Fed surprised markets by cutting interest rates by 75 basis points and added to this confirmation to the markets that interest rate would be kept within a 0 to 0.25% range. These levels in rates gives the Fed fewer tools at their disposal to stimulate the US economy and places ever greater pressure on the US government to deliver fiscal stimuli.

In contrast to the Fed, ECB President Trichet stated that the central bank would not cut interest rates forever, strongly hinting that they may keep interest rates on hold at their next meeting in January. German CPI data mid week further support the euro coming out in line with expectation and while the data maintained the euro’s trend higher traders were focused on the Bank of England minutes due later in the day. The minutes were considered to be quite dovish, revealing the MPC unanimously voted for a 100 basis point rate cut and discussions of a even larger cut. The pound hit a new record low breaking the 1.05 level versus the euro before retracing as the dollar recovered late week on the confirmation of a bail out for the US car makers and profit taking took place.

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