Yesterday the greenback slipped sharply against the EUR on the back of significant US stock market losses. Nevertheless it managed to gain back some much needed ground against the EUR. The USD was trading at 1.4241 against the EUR yesterday but it managed to rally later on and break the key 1.4200 mark. The main driver of this small greenback recovery was the release of the Empire State Business Conditions Index which surprised on the upside coming in at 28.8, beating the expected figure of 13.0. This Index measures the general business conditions of manufacturers in New York State and it was the only significant US economic event that was released yesterday. This positive data also helped the greenback find some reprieve against the GBP, as although it did not strengthen against the British currency it did manage to hold its ground which is a positive sign as the GBP has been on a sustained bullish rampage against the greenback. On Friday, there was also a string of positive US data, however the greenback fell sharply as the unexpectedly strong PPI figure once again raised inflation concerns for the Fed. However it will be important to monitor inflation as the previous rate cut by the Fed seems to already be bolstering producer prices, so it will be a major concern for the US economy if this results in a significant rise in consumer prices. On the back of last week’s FOMC meeting the Fed was expected to once again slash its key interest rate. However, this expectation has been offset by the latest string of robust US data. Yesterday’s strong Business Conditions Index reinforced the sentiment that the Fed will not cut the interest rate at the end of this month thereby boosting the greenback.
Looking ahead to today, there is more significant news to be released from the US, kicking off with Industrial Production which is expected to release slighlty lower than last month’s figure of 0.2% at 0.1%. Also, Treasury Secretary Paulson will speak today about the housing market, which will be closely followed by investors for hints on the Fed’s future monetary policy as a another monetary easing may be what is necessary to help the struggling housing sector. If the recent trend of US data is anything to go by then today’s news events, including the Capitalization Rate and the NAHB index, may very well spring another surprise on the upside. However with the current negative USD sentiment and with the ever rising Oil prices, the greenback is likely to remain under pressure.
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