Yesterday the USD fell against 15 of the most-actively traded currencies after a report showed U.S. housing starts dropped to a 14-year low in September. This housing data comes out only 1 day after the Federal Reserve Chairman Ben S. Bernanke reminded that the real estate is the major threat to growth with the contraction expected to go on into at least the middle of next year. The latest housing figures strengthen the case for Fed policy makers to cut interest rates again. Interest-rate futures suggest more than a 50% chance the Fed will cut the target rate a 0.25% point on Oct. 31, up from 38 percent yesterday.
In addition, yesterday’s U.S CPI data fell in line with consensus forecasts, easing fears that strong price pressures would keep the US Federal Reserve from cutting interest rates further in 2007. The CPI rose at the sharpest rate in 4 months in September, while core prices, which exclude volatile food and energy costs, came in line with expectations.
Traders cannot ignore the fact that Oil prices are on their way to $90 a barrel. The USD slipped broadly on Wednesday not only due to a sharp fall in U.S. Housing Starts for September, but also because of the surge in Crude Oil prices. Oil prices hitting new highs will continue to influence negatively on the US economy.
Looking ahead, there will be quite a few key US economic data releases today, kicking off with the Unemployment Claims at 12:30 GMT and the Philadelphia Fed Manufacturing Index later at 16:00 GMT. Both are expected to come out weaker than the previous month’s figures, and should broadly cause the Greenback to continue its weakening move from recent days.
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