US daily analiyis

The euro extended recent gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4705...

... level and was supported around the $1.4615 level.

The common currency recovered from earlier intraday weakness after Federal Reserve Chairman Bernanke warned the U.S. economy would likely decelerate in Q4 and expand below its long-term growth rate in H1 2008. On the inflation front, Bernanke added oil prices are increasing the risks of inflation and noted the Fed would not hesitate to adjust policy “as needed.” Notably, Bernanke also suggested the weaker U.S. dollar are other factors that are likely to increase overall inflation. Traders seem to be convinced the Fed is more concerned with the lower growth scenario at this stage compared with inflation as the December federal funds futures contract is now pricing in about a 93% chance the FOMC will reduce its overnight target rate by 25bps to 4.25% at its 11 December policy-setting meeting. Likewise, the market is pricing in about a 74% change the federal funds target rate will be lowered to 4% by the end of the FOMC’s two-day meeting at the end of January. Data released in the U.S. today saw weekly initial jobless claims fall 13,000 to 317,000 while continuing jobless claims fell 4,000 to 2.579 million. U.S. retailers have announced weak sales results for October and economists are downwardly revising their forecasts for holiday spending. In eurozone news, the European Central Bank kept its main refinancing rate unchanged at 4.00% as expected. ECB President Trichet was hawkish in his remarks and noted “The information available since our previous meeting fully confirms that the outlook for price stability over the medium term is subject to upside risks. Against this background, and with money and credit growth vigorous in the euro area, our monetary policy stands ready to counter upside risks to price stability as required by our mandate.” Trichet characterized recent exchange rate movements as “brutal and never welcome” and reiterated the U.S. continues to pursue a strong dollar policy. The European Commission announced it is “obviously concerned” with volatility in the euro and oil. Euro bids are cited around the US$ 1.4560 level.