The US dollar weakened against the euro

Previous session overview
On Monday the Fed said it plans a series of market interventions to inject additional liquidity through the year-end in response to heightened money market funding pressures. The US dollar weakened against the euro, sterling and yen as the Dow Jones Industrial Average fell by 237.44 points due to the bad news from Citigroup and HSBC Holdings.

Citigroup Inc. executives are trying to find the ways to cut costs amid a worsening business environment, that may lead to layoffs at the New York banking giant, the company said on Monday. In turn, HSBC Holdings PLC said it will bail out two structured investment vehicles and move their $45 billion in assets onto its balance sheet, as a liquidity crisis deepens.

US economic growth is below average for the third month, and inflation should be kept in check over the coming year, according to the data released on Monday by the Federal Reserve Bank of Chicago. The Chicago Fed National Activity Index dropped to -0.73 in October from -0.30 in September.

At 23:50 GMT, the euro was lower at 1.4868 dollars from 1.4878 dollars overnight. While players are not in a situation where they can buy dollar, growing concerns over a higher euro will likely discourage them from keeping a buying stance on euro. But outlook for pair remains upbeat in long term on back of USD weakness triggered by subprime mortgage crisis.

BoE Chief Economist Charles Bean said the central bank has to keep the interest rate high due to the upside pressure for commodity prices under the development of China and India, his speech supported GDP. At 23:50 GMT, the sterling was doing 2.0691 dollars.

The market expected the Swiss National Bank might raise the interest rate, which supported CHF. USD/CHF was traded at 1.0979.

A drop in US equity markets in the late afternoon stimulated a mass liquidation of yen carry trades, pushing USD/JPY down to fresh session lows. At 23:50 GMT, one US dollar was buying 107.45 yen compared with 107.32 yen in late New York trade. USD/JPY may fall to 107.00 amid lingering concerns over fallout from subprime mortgage woes, says trader at major Japan bank.

The high-yielding Australian dollar slipped further ahead of Asian equities open. At 23:50 GMT, it was worth 0.8721 US dollars after closing at 0.8693 last night as the plunge in US shares reduced the market's demand for risky investments.

USD/CAD consolidated with positive bias, underpinned by Canada officials' recent expressions of concern about sharp CAD gains, increased expectations of BoC rate cut, unwinding of long-CAD/JPY carry trades, lower oil prices. The pair was traded at 0.9885.

Market expectation
Today Germany, France and Italy will publish their November business confidence surveys. According to the market consensus, a slight decline is expected. Besides that, several German L?¤nder will also publish their first inflation data for November. Due to the rising energy and food prices, a further increase in the headline inflation rate is expected. This will keep the ECB concerned about the inflation outlook. A slowing economic growth may will ease current inflationary pressures and lead to two ECB rate cuts in the first half of 2008.

BoE's Blanchflower will speak today on the impact of immigration on the UK economy and BoE's Sentance will consider the recent issues in monetary policy.

The US market calendar contains the September S&P housing prices, the November Consumer confidence and the Richmond Fed survey on manufacturing. Fed governors Plosser (Philadelphia) and Evans (Chicago) speak about the economic outlook. The house prices should have declined further in September, when the crisis in the mortgage markets was probably at its highs. The Consumer confidence may also decline. The Richmond headline index is still expected to decline, but at a slightly slower pace than in October (-2 versus -5).

Regarding the Fed speakers, it will be interesting to see if the recent economic and market developments have made them more prone to vote for a rate cut in December.