Forex turnover shoots up to $34 bn/day

LONDON, Oct. 24, 2007 (Thomson Financial delivered by Newstex) -- Major currencies were locked in narrow ranges against each other ahead of the keenly awaited US existing home sales figures this afternoon.

The data is predicted to come in weak and if expectations are proven correct the dollar could be in for a bumpy ride this afternoon as hopes of a US rate cut strengthen.

'Although consumption and employment data have been modestly positive so far this quarter, the Fed will be concerned that the housing market is still not showing signs of bottoming out,' UBS (NYSE:UBS) analysts said.

Economists polled by Thomson's IFR Markets said they are expecting an annual rate of 5.2 mln existing home sales in September, its lowest since November 2001.

And against this backdrop, the real economy may not prove impervious indefinitely, they added.

In the short term, each data representing a slowing US economy will likely weigh on the dollar but in the longer term the risk of a spillover effect on the global economy may well see the dollar gaining ground eventually.

'We believe subsequent risk liquidation and repatriation will prove supportive for the dollar and we therefore target the euro returning to 1.35 usd in three months,' UBS analysts said..

Elsewhere, the euro survived a mixed set of euro zone PMI data, showing the services sector holding up well but manufacturing continuing to suffer the effects of the credit crunch.

The euro zone 'flash' PMI index on manufacturing dropped to 51.5, its lowest level in over two years during October, though the services PMI rose above expectations to 55.6. Both, nevertheless, remain above the 50 level which marks expansion in the sector.

'A fairly neutral set of surveys, with the latest weakening in the manufacturing index not a major surprise in a context of soaring euro and softening global picture, while the more domestic-orientated service sector is holding well for now,' said Audrey Childe-Freeman at CIBC World Markets.

The weak manufacturing reading, however, will increase speculation that the European Central Bank will not be in a position to raise interest rates despite its recent hawkish rhetoric, particularly given the strong euro.

'(These surveys are) all consistent with a wait-and-see monetary policy approach,' Childe-Freeman said.

The yen, meanwhile, found some support amid rumours that Merrill Lynch (NYSE:MER) (OOTC:MERIZ) will add to the write-downs on investments exposed to sub-prime it has already announced for the third quarter.

The Australian dollar got a fillip from strong inflation data which led to rising expectations of a rate hike even as the country heads for general elections end November.

London 1219 GMT London 0823 GMT
US dollar
yen 114.35 unchanged 114.35
sfr 1.1745 down from 1.1748
Euro
usd 1.4230 up from 1.4224
stg 0.6949 up from 0.6945
yen 162.70 down from 162.71
sfr 1.6709 unchanged 1.6709
Sterling
usd 2.0470 down from 2.0476
yen 234.10 down from 234.32
sfr 2.4045 down from 2.4055
Australian dollar
usd 0.8990 up from 0.8973
stg 0.4405 up from 0.4380
yen 102.80 up from 102.66
sivakumar.sithraputhran@thomson.com
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