Greenback Continues To Be Under Presure

US ISM Manufacturing On Tap

The greenback weakened all across the board on Friday and it closed off the week on another all time low against the EUR. The string of weak US economic data released throughout last week support an additional rate cut by the Fed and this is putting the dollar under pressure. On Friday the Core PCE Price Index, which measures the rate of inflation experienced by consumers when purchasing goods and services, released inline with expectations at 0.1 %. This data provided a strong indication to the market that although the Fed cut the interest rate significantly to 4.75 % there is still room for a further rate cut because the inflationary pressures are not taking effect yet as there was only a slight increase in consumer prices. Therefore the greenback plummeted on the back of this news hitting all time lows against multiple currencies, particularly against the EUR, as the interest rate differential between the US and Europe is expected to continue to tighten while the growth differential is expected to widen. The current market sentiment is very much dollar bearish as the US economy is expected to expand at a much slower rate than previously forecasted and this sluggish growth forecast has prompted market analysts to believe that the Fed will be forced to cut the interest to 4.0 % in 2008 in order to stimulate growth.

Looking ahead, there will be some key US economic data releases this week kicking off today with the ISM Manufacturing Index and The ISM Manufacturing Prices. These figures may cause some volatility as the Fed is now keeping a close watch on all the indicators to determine its future monetary policy. However this weeks trading may be somewhat range bound as the market will begin to shift its focus to Friday’s all- important Non Farm Payrolls report. If the US data releases will continue to disappoint this week than the greenback will remain under pressure as expecations of another rate cut increase but some positive news will provide the greenback with reprieve as the EUR and GBP should be well past their peak.