NEWS / Foreign Exchange

USD Slumps on Consumer Confidence

10/30/2007 3:15 PM: EUR/$..1.4438 $/JPY..114.70 GBP/$..2.0676 $/CHF..1.1589 AUD/$..0.9205 $/CAD..0.9528

USD Slumps on Consumer Confidence

The beleaguered dollar found no reprieve on Tuesday, remaining mired near all-time lows versus the euro at 1.4436, and 26-year lows against the sterling just shy of the 2.07-level. Dragging the greenback lower today was a report from the Conference Board revealing a dip in consumer confidence to a new 2-year low at 95.6 for October, compared with a downwardly revised 99.5 from September. The expectations index for October fell to 80.1, versus a revised 85.0 from a month earlier.

The currency market will likely consolidate in the coming session as traders take to the sidelines ahead of Wednesday??™s FOMC monetary policy decision and accompanying statement. Although the Fed funds futures are fully discounting a 25-basis point rate cut to 4.50% tomorrow, the focus will be on the language used in the subsequent policy statement. Further, the dollar may regain its footing against the majors if the Fed instead opts to leave rates unchanged at 4.75% while signaling a cut at its December meeting.

Prior to the Fed announcement, several key pieces of economic data will provide additional gauges on the state of the US economy. Growth in Q3 is estimated to fall to 3.0%, down from 3.8%. The core PCE is seen edging up to 1.5% from 1.4%, while the headline Q3 PCE is forecasted to fall to 1.5% from 4.3%. The October ADP private sector payrolls, often viewed as a proxy to the more important non-farm payrolls, are seen up slightly to 60k versus 58k. Meanwhile, the October Chicago PMI is estimated to slip to 53.0, down from 54.2.

GBP Rallies amid Tempered Rate Cut Expectations

The sterling climbed to its highest level in 26-years against the greenback while rallying sharply versus the yen prompted by overnight comments from a Bank of England board member. The BoE??™s Barker pondered whether conditions have changed significantly since August that would force the Bank??™s hand next week. Given the recent slate of upbeat UK economic reports, we do not expect the BoE to alter its stance when it deliberates monetary policy next week.

Cable remains buoyed near its multi-decade highs, pulling off slightly from beneath the 2.07-level. Resistance is seen at 2.07, followed by 2.0740 and 2.0775. Subsequent ceilings are eyed at 2.08 and 2.0850. Meanwhile, on the downside support begins at 2.0650, followed by 2.06 and 2.0560. Additional floors will emerge at 2.0530 and 2.05.

Euro Hovers near All-Time High

The euro remains buoyed near its record high versus the dollar near the 1.4440-level. Germany??™s October unemployment rate was unchanged at 8.7%, while the unemployment change was -40k, versus -30k from September. In the Wednesday session, traders will digest Germany September retail sales, Eurozone October business climate, consumer sentiment, industrial sentiment, unemployment rate and flash inflation.

EURUSD continues to hold steady above the 1.44-level, with resistance emerging at 1.4440 and 1.4470. Subsequent ceilings are seen at 1.45 and 1.4550. On the downside, support begins at 1.44, followed by 1.4380 and 1.4350. Additional floors are eyed at 1.43, backed by 1.4250 and 1.4220.