NEWS / Foreign Exchange

Dollar at historic lows against the Euro and Canadian dollar

Last Monday the dollar recovered slightly against all major currencies, after touching a new record low against the euro at $1.4348. The G7 weekend meeting failed to address the dollar weakness, and traders are seeing this as a "green light" for a further depreciating dollar. European currencies were affected by yen carry trades unwinding, to cover losses on stock markets in Europe and Asia.

The Greenback was trading mixed on Tuesday, gaining against the yen but sliding lower vs. European currencies. The euro was buying $1.4260, and the dollar was buying 114.70 yens.

Much weaker than expected US housing data published on Wednesday resurfaced the market's fear of a new rate cut at the FED proximate meeting. Instead of a 3.6% predicted fall in existing homes sales, the National Association of Realtors reported an 8% drop for September. US largest mortgage broker, Merrill Lynch reported an $8 million loss the same day. Economist now speculated another half point rate cut at the Oct. 31st FOMC meeting. A 0.25% cut is already priced in the market.
Data in Europe showed the slowest rate of growth in 2 years in the month of October for the manufacturing index. The manufacturing sector is showing signs that the latest euro strength against the Greenback and the yen is affecting the economy.

Thursday a US report showed a 1.7% decline in durable-goods orders in September. Crude oil hit a new record price at $90.60/barrel. Weekly jobless claims fell to 331,000. New homes sales increased in September by 4.8%. Overall market sentiment towards a 0.5% FED rate cut on Oct.31st grew stronger.

The greenback ended the week much lower against most currencies. A record high of $1.4393 was set against the common currency. It seems the $1.4500 level targeted by market participants by the end of 2007 is much closer than expected. The dollar also established a record low against the Canadian dollar at 0.9587.
In economic data, the University of Michigan consumer confidence index was reported at 80.9 in October, falling from 83.4 in September.

For the coming week the market focus will mainly be on the FOMC rate decision on Wednesday. We incline towards a 50 basis points rate cut. However if the cut is only 0.25%, the dollar may slightly correct against the majors (as the 25 basis points reduction is already priced by the market). Second mostly watched economic event of the week will be Friday's Non-farm payrolls report.