Dollar Moves To Multi-Week High Versus Euro [EUR/USD] Amid Data Release

The last data shows jobless claims up 35,000, to 380,000.

Early US trading took place amid the release of data showing consumer spending in the month of March was up 0.4%, while core Prices were up 0.2%.

As a consequence, the dollar rallied to its highest level against the euro in more than five months on Thursday.

The pair moved to 1.5480 after a pair of economic reports in the U.S. at 8:30 a.m. ET.

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Forex Rates - May 1st

As most of the world celebrates Labor day the global economic calendar remains barren until the North American session.

The euro however, was weak throughout the night as traders reconsidered the initial post FOMC reaction which took the pair for a 100 point upward ride.

Although US monetary officials  did not explicitly state that they were going to end the easing cycle, the FOMC statement did hint that the committee may be changing its bias from dovish to neutral.

The long term implication of such a shift in policy should favor the dollar, as markets begin to appreciate the fact that most of the monetary adjustment by the Fed has already been made.

With most of the rate cuts behind us, the greenback, which has been battered relentlessly due to unfavorable interest rate differentials, may now  find some reason to rally.

The euro was also pushed lower by a relatively upbeat Financial Stability Report from BoE that stated that the worst of the credit crisis may be over.

Taken together with yesterday’s better than expected US GDP data, this analysis suggests that the US economy may be simply in the midst of a slowdown rather than the full blown recession and if that were the case the dollar may see further strength as traders reassess their   doomsday assumptions.

At posting time (20:25 - GMT+8), main Forex rates are:

EURUSD	1.5516
USDJPY	104.16
GBPUSD	1.9856
USDCAD	1.0108
USDCHF	1.0448
EURCHF	1.6214
EURGBP	0.7811
EURJPY	161.6197
USDTWD	30.4676
AUDUSD	0.9374
NZDUSD	0.7778
USDSGD	1.3585
EURTWD	47.275

 

Technorati Tags: Forex, Currencies, Rates, fvarga

Central Banks Interest Rates May 1st 2008

After the Fed’s decision (- 25bp), here are the new interest rates for the Central Banks:

NZD	8.25%
AUD	7.25%
CAD	3.00%
USD	2.00%
EUR	4.00%
JPY	0.50%
CHF	2.75%
GBP	5.00%

 

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Before The Bell - May 1st

Yesterday’s noncommittal interest-rate outlook from the Fed sent Wall Street lower, but it seems to be having a positive boomerang effect today. Stock futures are pointing higher.

The dollar is bummed out that the central bank did not call a definite halt to rate cuts, but it’s chalking the statement up as a small disappointment. Now it’s benefiting from weakness in the euro on worries about that area’s economy.

The dollar’s strength has caused commodity prices to soften, easing fears of inflation. Oil is down slightly after yesterday’s big drop, although a strike in Nigeria is providing limited support. Gold is steady but not too far from a three-month low.

Upcoming data includes the Institute of Supply Management’s manufacturing index, weekly jobless claims, a report on personal income and consumption, and construction spending.

U.S. automakers will release monthly sales figures throughout the day.

Everyone’s going to be watching Microsoft. According to The Wall Street Journal, the company’s board met yesterday, but didn’t reach a decision on what to do vis-à-vis its spurned takeover bid for Yahoo.

In another standoff, the Hollywood studios are saying they’re not even close to a contract agreement with the Screen Actors Guild.

Manufacturing conglomerate Tyco International reported higher-than-expected quarterly profit, while Kodak’s loss narrowed.

Technorati Tags: Stock Market, USA, fvarga

Tom Toles and USA

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FOMC Cuts, Outlook Unclear

The dollar was mixed following the FOMC’s announcement to cut rates by 25-basis points to 2.0%.

The Fed reiterated that economic activity remains weak, while “household and business spending has been subdued and labor markets have softened further”.

The Fed expects lingering tight credit conditions and the “deepening housing contraction” to weigh on growth over the coming quarters. Nonetheless, the statement did not give a clear indication of whether the Fed would continue easing policy over the coming months.

The FOMC said that uncertainty about the inflation outlook remains high, but does expect it to moderate in the coming quarters. While it was unclear from the policy statement, we anticipate the Fed will leave interest rates unchanged for the remainder of the year.

Economic data from the US earlier in the session was better than expected, with the advanced reading of Q1 GDP unchanged at 0.6% — beating out calls for a drop to 0.2%. The Q1 core PCE prices declined to 2.2% from 2.5%, while GDP sales posted a 0.2% drop versus a 2.4% increase in the previous quarter.

The April ADP private sector payrolls number also reported better than forecast, posting a 10k increase, compared with estimates for a 60k decline and improving slightly from 8k in March. The April Chicago PMI survey improved from March, rising to 48.3 from 48.2.

Technorati Tags: Fed, USD, Interest Rate, fvarga

Fed Decision and Analysis

The FOMC cut the Fed Fund rate by 25bps to 2.00% as expected. Fisher and Plosser dissented again, as they did at the 18 March FOMC meeting, voting for no change this month. The Board unanimously approved a parallel 25bps cut in the discount rate to 2.25%, maintaining an extremely accommodative stance for financial institutions.

The “balance of risks” statement confirmed expectations of a “pause” in the Fed’s rate cycle. The statement omitted last month’s references to downside risks to growth and the need for the Fed to “act in a timely manner” to manage risks to growth and price stability.

The Fed has now taken the stance of an active observer against a backdrop of adverse developments taking place in real economic growth, financial markets and inflation. This month’s statement noted, “The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.”

However, a 2% level for the Fed Fund rate does not represent a natural end of this easing cycle. Against a backdrop of complex challenges facing the economy, a 2% trough for this Fed rate cycle, as priced in the market, is a low conviction view. The FOMC noted that real economic weakness continues to manifest itself in slower consumer spending and softer labour markets. Moreover, it acknowledged that the slowdown has now spilled over onto business investment, while financial services remain under considerable stress and the correction in the housing market continues. The Fed’s growth assessment practically outlines a recession – indeed the Q1 GDP figure published today showed negative growth of -0.2% when adjusted for an involuntary build-up in inventories.

Instead, the Fed’s decision to “pause” at 2% was linked to high cost-push pressures from rising commodity prices and their adverse impact on inflation expectations. To the extent that the Fed’s ability to deliver further relief for the economy and financial markets is limited due to cost-push as opposed to demand-pull inflation pressures, this is a negative scenario for risk assets which bodes badly for the dollar and it is likely to support bullish steepeners down the yield curve.

 

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