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.