Stocks recovery helps US Dollar

The decline by the U.S. dollar was prevented from falling further by a recovery in the European and U.S. equity markets, coupled with slightly improved sentiment in the financial sector.

Following a N.Y. Times report that the United States government is considering the possibility of taking over Freddie Mac and Fannie Mae, if their financial conditions worsen, stocks improved.  Some analysts believe that a take-over by the U.S. government could ease pressure on the troubled financial sector.

On July 11, 2008 at 07:30 GMT in London, the Euro was firmed at $1.5781, near a high of $1.5800 a week ago, while the U.S. Dollar increased 0.1% against the Yen to 107.18 Yen.

It is expected that the Reuters/University of Michigan initial July consumer sentiment will fall to 55.5, a 28 year low.  Another drop in the sentiment, if coupled with an increase in inflationary expectations, could put pressure on stagflation worries.  Rising oil prices will negatively impact consumer sentiment; on Friday, oil prices rose per barrel, and were within $3 of the record high recorded last week.

Last week the European Central Bank increased interest rates to 4.25% due to rising inflation caused in part by high energy prices.  This resulted in the Euro having its biggest yield advantage against the U.S. Dollar in almost a decade.

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