Evening Report-Jan 02.

The Rupee weakened in the early trade and was seen at 48.94 against the dollar due to lack of dollars in the market and a widening current account deficit put pressure on the local unit,Rupee strengthend Following is the statement issued by Reserve Bank of India on further monetary stimulus measures and closed at 48.59 levls as RBI cuts repo, reverse repo rate by 100bps and CRR by 50bps and Govt has also expressed its need to push economic stimulusThe U.S.ISM manufacturing indicator is expected to show a decline to 35.4 from 36.2, which would be the lowest in almost three decades. Waning domestic demand combined with sharp declines in overseas orders has led to a deep contraction in the sector. The troubles of the U.S. auto maker’s will only add to the declining activity as they are shutting plants in order to avoid bankruptcy. The dollar could weaken on the data if fundamental factors are driving price action today. Also, If equity markets continue the bullish momentum from the last day of trading ion 2008, then we may see the greenback weaken on increasing risk appetite as safe haven flows leave U.S. Treasury’s seeking higher returns abroad. Euro started 2009 under heavy selling pressure falling to 1.3839, the lowest level in two weeks. The single currency would pare the majority of it earlier losses reaching above 1.3950 despite the final December PMI manufacturing reading being revised lower to 33.9 from a preliminary reading of 34.5. As manufacturing activity continues to contract and the regions labor markets continue to weaken pressure will mount for the ECB to continue easing rates. President Trichets comments that the past three rate cuts have yet been realized by the economy shows tat the central bank is reluctant to take rates lower. In the past the MPC has expressed fear of being trapped if they take rate too low which would leave them trapped without further recourse. Yet, the cries are mounting for more action from the central bank and another rate cut is very likely at their next policy meeting on January 15th. Therefore, we may see bearish Euro sentiment continue as interest rate expectations decline. Pound drop from its daily high of 1.4812 to a low of 1.4502 before consolidating as U.K. manufacturing and housing sectors showed further weakness. Indeed, mortgage approvals fell from 32,000 to 27,000. Additionally, house prices fell another 2.2% in December according to HBOS. Meanwhile, the December PMI manufacturing reading despite unexpectedly improving to 34.9 from a record low of 34.5 the month prior, contracted for the seventh straight month. Tight credit markets continue to cripple demand which may force the BoE to take further measures to loosen lending standards. Therefore, markets are expecting a rate cut from 50-100 bops which could lead to further Sterling weakness as we near the policy decision.Dollar and dropped versus the yen after a European manufacturing report showed the recession is deepening in the 16- nation region.