The dollar fell against the euro and sterling, slipping to 1.4647 and 1.9736, respectively. The greenback was unable to sustain earlier gains following better than expected US economic reports as hints of further interest rates cuts from the FOMC weighed on the currency.
The data included weekly jobless claims, which eased to 348k down from 356k a week earlier. Meanwhile, the December trade deficit shrunk by more than estimates, falling to $58.76 billion, compared with calls for a decline to $61.5 billion from $63.12 billion in November. Also, the deficit with China fell to $18.79 billion versus $23.95 billion from November.
Fed Chairman Ben Bernanke said the outlook for the economy has worsened in recent months and that downside risks to growth have increased. He provided a somber assessment of the housing market, labor market and credit conditions, adding that conditions could worsen more than anticipated. Bernanke expects sluggish growth in the near term but anticipates a stronger pace later as monetary and fiscal stimulus trickle into the economy. He emphasized lags in monetary policy and that stance should be assessed in light of medium term forecasts and risks. Further, Bernanke sees overall CPI easing from recent rates and expectations remain anchored. He said the Fed would closely monitor inflation expectations. Bernanke’s comments reinforce market sentiment that the FOMC will maintain its easing stance, saying it would “act in a timely manner as needed to support growth and to provide adequate insurance against downside risks”.
Sunday
Weak US Data Drags USD
The dollar eased further versus the euro and sterling following another round of weak US economic data, falling to 1.4708 and 1.9722, respectively. A key indicator of consumer confidence fell to its lowest level in 16-years with the University of Michigan preliminary sentiment survey dropping to 69.6, versus 78.4 from January. Industrial output in January crept up marginally to 0.1% versus a flat reading in December. Meanwhile, capacity utilization also increased slightly to 81.5% from 81.4% a month earlier. Also released was the December net capital flows (TIC), which more than halved to $60.4 billion, versus a revised $150.8 billion a month prior.
The string of soft US data reinforces fears that the economy is headed toward a recession, thereby prompting the Fed to aggressively ease rates over the coming months. Fed funds futures contracts reflected a 60% probability for the FOMC to cut rates by 50-basis points to 2.50% at the next policy setting meeting in March.
The string of soft US data reinforces fears that the economy is headed toward a recession, thereby prompting the Fed to aggressively ease rates over the coming months. Fed funds futures contracts reflected a 60% probability for the FOMC to cut rates by 50-basis points to 2.50% at the next policy setting meeting in March.
AUD Rallies on Hawkish RBA
The dollar is weaker against the euro and Aussie as the US market returns from holiday, falling to its lowest level in 3-months versus the Aussie at 0.9236 and a 2-week low against the euro at 1.4756.
The NAHB housing market index unexpectedly rose to 20 in February, versus 19 a month earlier. Nonetheless, despite the improvement, the index remains mired near record lows. Traders will turn to US economic data slated for release on Wednesday, which include January CPI, building permits, real earnings, and housing starts. Consumer prices in January are largely unchanged, with monthly headline CPI at 0.3% from 0.4% and 4.2% versus 4.1% from the previous year. The core readings are seen at 0.2%, unchanged from a month prior and 2.4% y/y, also unchanged.
The NAHB housing market index unexpectedly rose to 20 in February, versus 19 a month earlier. Nonetheless, despite the improvement, the index remains mired near record lows. Traders will turn to US economic data slated for release on Wednesday, which include January CPI, building permits, real earnings, and housing starts. Consumer prices in January are largely unchanged, with monthly headline CPI at 0.3% from 0.4% and 4.2% versus 4.1% from the previous year. The core readings are seen at 0.2%, unchanged from a month prior and 2.4% y/y, also unchanged.
FOMC Minutes Suggests Further Cuts
The greenback edged higher against the majors, climbing to 108.36 versus the yen and pushing the euro to 1.4615. A barrage of US economic data was released earlier in the session, with key indicators on inflation and housing giving further clues on the scope for additional easing by the FOMC. Inflation ticked higher in January with the headline consumer price index edging out expectations – at 0.4% m/m and 4.3% from 4.1% a year earlier. The core CPI, which excludes food and energy, stood at 0.4% m/m and 2.5% from 2.4% in the previous year. Housing starts reversed the 14.2% plunge in December, edging up by 0.8% to 1.012 million units in January.
The FOMC released its monetary policy minutes revealing that in addition to the unscheduled meeting on January 21st, in which the board cut rates by 75-basis points, the Fed also met two weeks prior on January 9th. In the minutes from the January 30th meeting, the Fed expects downside risks to remain – lowering its growth projections for 2008 to 1.3%-2% from 1.8%-2.5%. The overall tone from the minutes provided a somber outlook for the economy, with risks for steeper deterioration in the housing market, tighter credit conditions and jobless rate risk tilted to the upside. However, the Fed did note that when conditions improve, “possible rapid reversal of cuts may be needed”.
US economic reports slated for release on the Thursday session will see weekly jobless claims, January leading indicators, and the Philadelphia Fed survey. Weekly jobless claims are expected to edge up slightly to 350k, versus 348k in the previous week, while the leading economic indicators for January are forecasted to dip by 0.1%, improving slightly from the 0.2% a month earlier. The February Philadelphia Fed survey is seen improving to minus 11, from minus 20.9 a month earlier.
The FOMC released its monetary policy minutes revealing that in addition to the unscheduled meeting on January 21st, in which the board cut rates by 75-basis points, the Fed also met two weeks prior on January 9th. In the minutes from the January 30th meeting, the Fed expects downside risks to remain – lowering its growth projections for 2008 to 1.3%-2% from 1.8%-2.5%. The overall tone from the minutes provided a somber outlook for the economy, with risks for steeper deterioration in the housing market, tighter credit conditions and jobless rate risk tilted to the upside. However, the Fed did note that when conditions improve, “possible rapid reversal of cuts may be needed”.
US economic reports slated for release on the Thursday session will see weekly jobless claims, January leading indicators, and the Philadelphia Fed survey. Weekly jobless claims are expected to edge up slightly to 350k, versus 348k in the previous week, while the leading economic indicators for January are forecasted to dip by 0.1%, improving slightly from the 0.2% a month earlier. The February Philadelphia Fed survey is seen improving to minus 11, from minus 20.9 a month earlier.
USD Slumps on Dismal Data
The dollar fell across the board, slumping to a two-week low against the euro to 1.4837 and relinquishing the 1.96-level versus the sterling. The catalyst for the greenback’s losses was another round of weak US data reigniting fears that the economy is headed into recession.
The Philadelphia Fed manufacturing index plunged to its lowest level since 2001 to minus 24 in February deteriorating further from the minus 20.9 reading a month earlier and defying expectations for an improvement to minus 11. The January leading economic indicators index was in line with expectations, down 0.1% versus a 0.2% decline from the previous month. Meanwhile, weekly jobless claims came in at 349k, versus a revised 358k from the previous week.
Given the current scenario of deteriorating fundamentals and lingering inflationary pressure, we expect the Fed to maintain its focus on growth with inflation reports taking a secondary role. Yesterday’s stronger than expected consumer price index reports failed to deter markets from pricing in further aggressive rate cuts by the FOMC. We look for the Fed to cut rates by 50-basis points when they meet next month, taking their benchmark lending down to 2.5%.
The Philadelphia Fed manufacturing index plunged to its lowest level since 2001 to minus 24 in February deteriorating further from the minus 20.9 reading a month earlier and defying expectations for an improvement to minus 11. The January leading economic indicators index was in line with expectations, down 0.1% versus a 0.2% decline from the previous month. Meanwhile, weekly jobless claims came in at 349k, versus a revised 358k from the previous week.
Given the current scenario of deteriorating fundamentals and lingering inflationary pressure, we expect the Fed to maintain its focus on growth with inflation reports taking a secondary role. Yesterday’s stronger than expected consumer price index reports failed to deter markets from pricing in further aggressive rate cuts by the FOMC. We look for the Fed to cut rates by 50-basis points when they meet next month, taking their benchmark lending down to 2.5%.
Subscribe to:
Posts (Atom)
