Rupee cut its losses against the U.S. dollar because banks sold the greenback on behalf of exporters and also noting the rise in local share market .Local share indices ended nearly 1.50% up which aided the sentiment for the rupee. However dollar demand from importers limited the rise in the Indian unit. The U.S. economic calendar will provide event risk for he first time in nearly a week with manufacturing, housing and sentiment data on tap. The home price index is expected to show property values fell 17.9% in October from a year earlier which would be the lowest since record keeping began in 2001. Meanwhile, the Chicago PMI reading is expected to fall to 33.0, which would be the lowest since 1982. Despite declining home values, and mounting job losses sentiment in the U.S. is expected to improve. Economists are forecasting that consumer confidence to rise to 45.5 from 44.9 on the back of lower gasoline prices and the anticipation of another fiscal stimulus. The Fed’s announcement of a $6 billion lifeline for GMAC could ease fears and help send equities higher today. Conversely, the continuation of the worse housing slump since the Great Depression and further contraction in the manufacturing sector may spark risk aversion flows and add to dollar strength. After testing support at 1.4000 during Asian trading, the Euro gave a rally of 150 bps aided by an improvement in retail sales. The Euro-Zone Retail PMI reading improved to 41.4 from 40.6 led by gains in Germany and Italy. Nevertheless, the reading below 50 signals that sales contracted for the seventh straight month as recession concerns have lead to consumers curbing their spending. The majority of the improvement was due to lower input costs, which will allow stores to continue slashing prices. Indeed inflation continues to ease in the region with Italian producer prices falling another 1.6% in November, dragging the annualized rate to 2.3% from 5.1%. The ECB will find it hard to argue that its mandate for price stability is preventing them from further easing with the sharp drop in inflation. Until we get a clear indication of the central bank’s bias, we may see the Euro settle into a trading range between 1.4000 – 1.4500.After setting a fresh 80 month low the Pound has found support trading back above 1.4500. The Sterling briefly broke below its recent trading range of 1.4500-1.5500 and has since consolidated above the psychological level. However interest rate expectations continue to decline and forecasts are that the BoE will cut rates by another 50 bps at their next policy meeting. The U.K. has lagged the U.S. concerning their housing and financial troubles and monetary policy. Therefor the central bank may be on a course for a zero interest rate policy which will lead to further pound weakness. Dollar weakened against yen after surging to a 6-day high of 91.00
