Mar 28 2008
The USD Is Bearish Again.
The USD rallied yesterday against the EUR, after a data showed that the U.S. economy grew in line with market expectations during the 4th quarter.
Yesterday’s finalized GDP figure eased fears of a steeper slowdown after it printed at 0.6% - unchanged from the month prior. A fall in U.S. Unemployment Claims in the latest week further helped the USD regain ground after it posted sharp losses in the last two sessions. Personal Consumption data was also dollar supportive as it unexpectedly rose to 2.3% from 1.9%.
However, the data showing a decline in Jobless Claims did not change the market’s view about the need for further U.S. Interest Rate cuts to boost a weakening economy. Short-term Interest Rate futures indicate that investors see a 54% chance of the Fed cutting rates by another 0.5% point in April. A 0.25% point cut has already been fully priced in. Given expectations for additional policy easing at the FOMC meeting in April, the Interest Rate gap will continue to widen, weighing on the USD in the near future. The greenback has lost 18% against the EUR in the past year as the Fed cut its benchmark interest rate 6 times to 2.25% to avoid a recession.
Looking ahead, more consumer data will kick off the morning at 12:30 GMT, with the Personal Consumption and Spending index adding to the downward pressures for the U.S. dollar as both indices are expected to decline. The last release for the week will be the University of Michigan Confidence index which is due out at 14:00 GMT. Investors should look for more drops in the dollar price as there does not seem to be anything that prevents the detrimental fall of the greenback.
