NEWS / Foreign Exchange

The U.S. dollar retreated from yesterday's significant rally against the Euro

The U.S. dollar retreated from yesterday??™s significant rally against the Euro, as investors braced for September data on the U.S. housing market that is expected to push interest rates lower.
Existing home sales data will be reported tomorrow and new homes sales on Thursday. The reports come a week before a Federal Reserve meeting where the U.S. central bank is widely expected to cut U.S. rates by 25 basis points when it meets on October 31.Though the housing data will not by itself prompt the Fed to cut rates, the prospect of problems in the wider economy will make the Fed act to promote economic growth.
Despite yesterday??™s losses in early trading, the Euro rebounded this morning as markets remain range bound awaiting next week??™s Fed meeting. Look for the Euro to continue to test record highs as expectations for the Euro Zone/U.S. interest rate differential move in favor of Europe??™s single currency.

Sterling fell victim to profit taking late yesterday afternoon, but rebounded against the dollar and Euro this morning, although direction remained unclear and sentiment cautious.
With no major UK, U.S. or Euro zone economic data scheduled for release today, sterling is likely to take its cue from how investors' appetite for taking risk influences equities.
The Confederation of British Industry will release its October manufacturing orders survey and a speech by Bank of England policymaker Kate Barker will also attract attention.

The Japanese yen is weaker this morning as a rekindling of risk appetite on Tuesday put the yen under pressure as firmer equity markets prompted some investors to move back into carry trades, where they buy securities in a high-yielding currency funded by borrowing in a low-yielding currency such as the yen.
The dollar did manage to squeeze some gains against the yen, strengthening above Monday's six-week low of 113.23 yen.

The Canadian dollar hit a new 33-year high against the greenback after domestic retail sales data for August beat expectations. The Canadian dollar may have more room to climb if the U.S. Federal Reserve decides to cut its key fed funds rate at the end of the month. In the coming week, look for the loonie to continue to push higher testing new levels against the greenback, especially with soaring oil prices.

The Australian and New Zealand dollars held close to familiar ranges though slightly stronger as investor interest in the carry trade was rekindled. The Aussie and Kiwi should, continue to push higher as the market has priced in a 50 percent chance of a rate hike from the Reserve Bank of Australia.
All eyes are now on third-quarter consumer price index (CPI) data, due on Wednesday, which could prove to be the decider on whether domestic interest rates will increase in November.