NEWS / Foreign Exchange

The U.S. dollar recovered from Monday's record lows against the Euro

The U.S. dollar recovered from Monday??™s record lows against the Euro and a major basket of currencies after a Wall Street Journal report raised doubts about a widely expected U.S. rate cut tomorrow. Investors trimmed bets that the Federal Reserve will cut interest rates to 4.5 percent when they conclude the FOMC meeting Wednesday. This seemed to have prompted some profit-taking as the dollar rebounded a little bit, commodities came off, and equities came out a little softer.

The dollar later erased some of its gains as U.S. consumer confidence for September fell to its lowest level in two years. Look for the dollar to remain under pressure as the market awaits tomorrow??™s Fed decision.

The Euro fell below its record high set yesterday against the U.S. dollar dragged by weak retail PMI numbers. The single currency was also weighed down on mounting speculation that European banks reporting this week could announce bigger than expected write-downs related to troubles in the risky U.S. subprime mortgage market and subsequent global credit crunch. However, this morning??™s data will likely take the backseat as the market turns attention to the FOMC meeting tomorrow.

Sterling hit a 26-year peak against the dollar this morning, pushed higher by fading expectations of an imminent UK interest rate cut. Comments from Bank of England Monetary Policy Committee member Kate Barker on Monday were interpreted as suggesting that a BOE rate cut is not yet imminent. Policymakers will have to evaluate whether the situation in the UK economy has changed enough since August. Look for the pound to continue pushing higher on diminishing rate cut speculation.

The Japanese yen traded in familiar ranges and remained below its six week high set last week. The Bank of Japan is expected to forego raising interest rates at its one-day policy meeting on Wednesday due to uncertainty about the housing and credit markets in the US and its implications for global financial markets and the global economy.

The Canadian dollar fell from a 47-year high as prices of the nation's commodity exports declined. Crude retreated from a record high and gold and zinc also declined. Look for the Canadian dollar to continue to strengthen against the greenback with or without a Fed cut, as commodity??™s account for about half of Canada??™s exports and U.S. crude oil prices continue to climb above $91 a barrel.

The Australian dollar weakened this morning, pulling away from its 23 and a half year high and the New Zealand dollar sat near the bottom of its recent range. The decline was attributed to the U.S. dollar inching up ahead of the Fed??™s interest rate decision on Wednesday and as investors pare positions in risky assets, leading to a demand for carry trades.

The Mexican peso firmed to a new high as investors are betting the U.S. Federal Reserve will cut interest rates on Wednesday. Lower U.S. rates make Mexican stocks and bonds more attractive to yield-hungry investors.