Feb 19 2008
Will We See Another Rate Cut?
U.S. traders were off yesterday celebrating Presidents Day and there was no news or economic data to drive the move. By the end of the trading session, the USD was up 0.4% against the EUR, mainly as a result of position unwinding.
This week, inflation will be in focus as the U.S. consumers expect the rise in food and energy prices. Although the greenback edged higher yesterday, analysts estimate that the U.S. data releases may keep the pressure on the currency this week. Bernanke’s remarks and recent economic data have left investors betting on another half percentage point cut at the central bank’s March meeting. Futures contracts on the Chicago Board of Trade indicate traders see 74% likelihood the Fed will lower its benchmark rate by 0.5 percentage point at the next FOMC meeting. The rest of the bets are on a 0.75 percentage point reduction.
Today, the U.S economic calendar is relatively tame with only the National Association of Home Builders (NAHB) data providing any meaningful guidance to traders. NAHB index is measuring the demand outlook of single-family home builders. Also, during the day, the Minneapolis Fed President Stern is scheduled to speak about the U.S. economy at the Financial Planning Association of Minnesota. Traders scrutinize his speeches closely for clues regarding future monetary policy.
Traders may expect little major action in the U.S. currency till tomorrow, when the CPI report, Housing Starts and FOMC Meeting Minutes will be released. Overall, we expect bearish dollar sentiment will persist during the rest of the week.
