Finance Fears Unsettle USD

Financial fears will tend to unsettle the dollar in the near term, but losses should be contained

The dollar was unable to sustain gains through the 1.57 level against the Euro on Thursday and weakened to lows around the technically important 1.58 region after support levels near 1.5750 were broken with the dollar still weak on Friday.

There were further concerns over the US financial sector with a fresh batch of rumours surrounding Lehman Brothers which undermined dollar confidence in US trading. There were also continuing fears over the US mortgage companies with finance companies Fannie Mae and Freddie Mac falling again after remarks from Regional Fed Governor Poole that the companies could be insolvent. There were some media reports that the government could consider taking over the companies if stresses increased further and this may provide some degree of dollar support, although confidence will remain fragile. Treasury Secretary Paulson commented that markets will take additional time to stabilise while he also stated that some financial firms must be allowed to fail which reinforced market fears.

Initial US jobless claims were sharply lower than expected with a decline to 346,000 in the latest week from 404,000 previously. The decline may have been caused to a major degree by seasonal considerations in the auto sector.

Investica
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