[ForexNews]

The USD will come under renewed selling pressure after the UAE central bank sets up a special liquidity facility and announced that it will stand behind local and foreign based banks. Remember, the AED is pegged to the USD suggesting the local central bank providing AED liquidity will indirectly increase the supply of USD, which will weaken the USD.

Banks with exposure into the region will see a relief rally and since 45% of all bank loans in the UAE have come from the UK there will be a sterling rebound linked to the better news coming out of the UAE. However, the sterling rebound is unlikely to develop significant momentum since Abu Dhabi will ask Dubai to sell non essential assets. Dubai has significant holdings in UK real estate and share market. These holdings will create a sterling negative cash flow when sold off. In addition, the house price rebound in the UK seems to have flattened out (Nov Hometrack house prices nudge up by 0.2% in 4th monthly rise) and consumer confidence has declined for the first time since January. Meanwhile, the EEF manufacturers' organisation has warned that insolvencies could rise sharply in the next 12 months unless sufficient finance is available, especially for smaller companies. Latest money supply figures showed that credit supply into the corporate sector is still falling fast while lending into the unproductive housing sector has picked up.